Lacking enough GOP votes, Senate pushes back health bill

Sen. Rand Paul: Senate health care bill needs more Obamacare ‘repeal’

Hume on GOP Health Care Fight: Either Way, Republicans Have a ‘Problem’

Rand Paul: Let’s Repeal Obamacare And Don’t Replace It

Rush Limbaugh Talks Obamacare With VP Mike Pence: “We Take The Teeth Out Of The Tiger”

Republicans have one major problem on Obamacare

Why Can’t America Have a Grown-Up Healthcare Conversation?

Is Obamacare Working? The Affordable Care Act Five Years Later

Why Are American Health Care Costs So High?

How Health Insurance Works

Senate postpones health care bill vote

Individual Health Insurance VS. Group Health Insurance

Published on Aug 14, 2009

Ok so lets contrast individual vs. group health insurance. One thing that a lot of people get wrong is individual health insurance, number one isn’t as good coverage and number two, cost more than a group coverage. Well, these two things are wrong. The first one, lets talk about cost. We find that individual health insurance is about 40% less than any group plan. You can load it up with all the features and benefits you are looking for in a group

Group vs. Individual Health Insurance: Health Insurance Facts & More

Published on Aug 16, 2012

Trump triumphs, CNN implodes, the Russian myth is destroyed and the Alt-Left Media haven’t a clue.

How Demented and Sick Our Republic Has Become By Design

‘We’re Amending Obamacare. We’re Not Killing It’

The Senate bill coming out Thursday would do many things to health care in the U.S., but it won’t get rid of the Affordable Care Act, and Mitch McConnell won’t claim that it does.

RUSSELL BERMAN, JUN 22, 2017

The health-care bill Senate Republicans plan to unveil on Thursday likely will make substantial changes to Medicaid and cut taxes for wealthy Americans and businesses. It will eliminate mandates and relax regulations on insurance plans, and it will reduce the federal government’s role in health care.

What it won’t do, however, is actually repeal the Affordable Care Act.

Lost in the roiling debate over health care over the last several weeks is that Republicans have all but given up on their longstanding repeal-and-replace pledge. The slogan lives on in the rhetoric used by many GOP lawmakers and the Trump White House but not in the legislation the party is advancing. That was true when House Republicans passed the American Health Care Act last month, which rolled back key parts of Obamacare but was not a full repeal. And it is even more true of the bill the Senate has drafted in secret, which reportedly will stick closer to the underlying structure of the law.

“We’re amending Obamacare. We’re not killing it,” a frustrated Jason Pye of the conservative group FreedomWorks told me earlier this month as the murky outlines of the Senate proposal were beginning to emerge.

Like the House bill, the Senate plan is expected to repeal the ACA’s employer and individual insurance mandates and most if not all of the tax increases Democrats levied to pay for new programs and benefits. But the Senate bill likely will only begin a years-long phase-out of the ACA’s Medicaid expansion in 2020 rather than end it as the House measure does.

The Senate also is expected to include more generous tax credits than the House bill that more closely resemble the system already in place under Obamacare. But the funding levels would still be lower than the current law. And according to Axios, the bill would allow states to opt out of some ACA insurance regulations, but it would do so by loosening existing waivers within the current law rather than follow the House in creating a new waiver system. And the Senate proposal would require that states adhere to more of Obamacare’s regulations than the House bill.Senate Majority Leader McConnell has quietly abandoned the language of “repeal-and-replace” that his office originated seven years ago in the immediate aftermath of the ACA’s enactment. In more than a dozen speeches on health care that McConnell has delivered on the Senate floor since the House passed its bill in early May, he hasn’t uttered the word “repeal” a single time, according to transcripts provided by the majority leader’s office. Nor has he repeated his own pledge to rip out Obamacare “root and branch.” “We’re going to make every effort to pass a bill that dramatically changes the current health care law,” McConnell told reporters on Tuesday, setting a new standard for the bill Republicans plan to release on Thursday.“We’re going to make every effort to pass a bill that dramatically changes the current health care law.”

When the year started, legislation leaving Obamacare substantially in place would have been dead on arrival with hardliners in the House and Senate, who demanded that party leaders expand on a bill that former President Barack Obama vetoed in 2015. That measure did not fully repeal the ACA either, bowing to Senate budget rules limiting how much of the law Republicans could scrap without a filibuster-proof 60 votes. But it eliminated the tax credits and subsidies undergirding the law’s insurance exchanges along with its tax increases and mandates. And with Republicans now in control of both Congress and the White House, conservatives in the House Freedom Caucus this spring began pushing the leadership to go further by repealing Obamacare’s core consumer protections guaranteeing the coverage of essential health benefits and prohibiting insurers from charging higher rates to people with preexisting conditions.

The deal that ultimately allowed the AHCA to pass the House was an under-appreciated turning point in the health-care debate. The concession that Speaker Paul Ryan and a few key moderates made to the Freedom Caucus was to allow states to opt out of some of Obamacare’s insurance regulations, most crucially on equal treatment for pre-existing conditions. But the concession that conservative lawmakers and outside groups made in return was just as significant: They agreed to back off their demand for full repeal and endorse—or at least not fight—a bill that fell far short of that goal.“While this legislation does not fully repeal Obamacare, it’s an important step in keeping that promise to lower healthcare costs,” the Freedom Caucus said in its statement upon passage of the AHCA. It was a message echoed by outside groups like FreedomWorks, Heritage Action, and the Club for Growth, who agreed to drop their opposition to the bill, a move that gave Republicans additional cover to vote for it. Conservatives had embraced an incrementalist approach to Obamacare. The new standard they adopted for health-care legislation was not whether it eliminated the Affordable Care Act but whether it would lower premiums for most consumers.One key question for McConnell is whether the most outspoken conservatives in his caucus—Senators Rand Paul of Kentucky, Ted Cruz of Texas, and Mike Lee of Utah—will judge the Senate bill by that more modest baseline. Republicans can lose no more than two votes to secure passage, and a group of moderate senators is proving just as difficult for party leaders to nail down. To this point, Paul has been the most critical of the GOP approach and the most likely to oppose the proposal from the right. The House bill, he complained, already kept 90 percent of Obamacare’s subsidies. “If this gets any more subsidies in it, it may well be equal to what we have in Obamacare. So it really wouldn’t be repeal,” Paul said on Tuesday, according to Bloomberg. Even so, the Kentucky conservative wouldn’t rule out supporting the bill until he read the text.Cruz and Lee have participated in the Senate process as members of the 13-man working group, and aides have said both have bought into McConnell’s incremental approach. But the two have each complained about the emerging draft in recent days, either on the substance or the top-down, secretive process used to write the bill. “We’re not there yet,” Cruz said Tuesday on Fox News. “The current draft doesn’t do nearly enough to lower premiums.”The Congressional Budget Office projected that in states that opted out of Obamacare’s insurance requirements under the waivers allowed in the House bill, average premiums would drop significantly. But the tradeoff is that people with preexisting conditions would face sharply higher costs or be priced out of insurance entirely. Conservatives have argued that the high cost of adhering to the ACA’s minimum coverage requirements has forced insurers to raise premiums in order to make a profit.Conservative activists briefly held out hope that the health-care bill would move further to the right in the Senate, buoyed by efforts by Cruz and Lee to have Republicans override parliamentary rulings limiting how much of Obamacare they could repeal through the budget reconciliation process. But party leaders never seriously considered that option, which moderate Republicans were likely to oppose.In recent weeks, conservatives have instead focused on demanding that the Senate preserve—or deepen—the reforms to Medicaid in the House bill while still repealing all of Obamacare’s tax hikes. “It is clear that significant portions of the Republican Party have no intention of actually repealing Obamacare despite campaigning on that objective for years,” Mike Needham, CEO of Heritage Action, said in a statement on Wednesday.

“Conservatives will evaluate legislative language when it becomes available, looking particularly at whether the legislation empowers states to get out of the onerous insurance mandates imposed by Obamacare, maintains and improves the House’s Medicaid reforms, and repeals Obamacare’s stifling taxes.”

Make no mistake, Republicans aren’t merely tinkering around the edges of the health-care system, or Obamacare. The Senate proposal that will come out on Thursday will significantly alter the federal funding of Medicaid and, in all likelihood, would result in millions fewer Americans having health insurance over the next decade, as projected by the CBO. And while they won’t be excited by the bill, conservative senators and activists might well come around to support it. They’d vote for the plan as a step in the right direction, a weakening of Obamacare. But like McConnell, they won’t be calling it something that it’s not: repeal.

What’s in the Senate Republican Health-Care Bill

Like the House version, Mitch McConnell’s proposal would slash taxes, cut Medicaid, and eliminate Obamacare’s insurance mandates for individuals and employers.

The Senate Republican health-care bill is finally out in the open.

After weeks of secretive deliberations, party leaders on Thursday released a 142-page proposal that would slash taxes on the wealthy and businesses; reduce federal funding for Medicaid and phase out its expansion under the Affordable Care Act; and limit the tax credits available to help people purchase insurance on the individual market. The legislation, titled the Better Care Reconciliation Act of 2017, is officially labeled a “discussion draft,” but Senate Majority Leader Mitch McConnell wants Republicans to debate and vote on the bill by the end of next week.

Like the American Health Care Act that passed the House in May, the Senate bill is a substantial revision to Obamacare but not a wholesale repeal. And while Senate Republicans had vowed to start over rather than work off the unpopular House proposal, their version is structured the same way. The Senate measure mirrors the House bill in eliminating the ACA’s employer and individual insurance mandates and most of the tax increases it imposed to pay for new programs. Both proposals call for an overhaul of Medicaid funding that would allow states to institute work requirements and end the program’s status as an open-ended entitlement. The Senate bill would go further than the House’s $800 billion in cuts by reducing its growth rate beginning in 2025, but unlike the House version, it would begin a three-year phase-out of the program’s expansion in 2020. The AHCA would cut off the expansion entirely that year.

As expected, Democrats assailed the proposal as a draconian measure that would strip health insurance from millions all for the goal of providing tax cuts for the rich. They seized on comments that President Trump reportedly made to Republican senators in which he called the House proposal “mean.”
“Simply put: This bill will result in higher costs, less care, and millions of Americans will lose their health insurance, particularly through Medicaid,” Senate Minority Leader Charles Schumer said. “It’s every bit as bad as the House bill; in some ways, it’s even worse.”

But the McConnell was never intended to appeal to Democrats. Instead, the majority leader and the Senate policy staffers who wrote the bill were trying to strike a delicate balance between conservatives bent on ripping up Obamacare and moderate Republican senators who, though they campaigned on repeal, now want to preserve its central benefits. Whether McConnell achieved that middle ground is unclear, as few Republican senators leapt to embrace his proposal in the immediate aftermath of its release. The first official holdouts to emerge were a group of four conservatives: Senators Rand Paul of Kentucky, Ted Cruz of Texas, Mike Lee of Utah, and Ron Johnson of Wisconsin.“Currently, for a variety of reasons, we are not ready to vote for this bill, but we are open to negotiation and obtaining more information before it is brought to the floor,” they said in a joint statement. “There are provisions in this draft that represent an improvement to our current health care system, but it does not appear this draft as written will accomplish the most important promise that we made to Americans: to repeal Obamacare and lower their health care costs.”Their statement was significant because together, their opposition alone could sink the bill given the GOP’s narrow, 52-48 majority in the Senate. But its careful wording left a lot of room for any or all of the conservatives to come around by the time the bill hits the floor next week. Paul, who has been a critic of the GOP approach for months, was more harsh in a pair of tweets he sent on his own. “The current bill does not repeal Obamacare. It does not keep our promises to the American people,” he wrote. Paul had long been considered a likely no vote, as it is unlikely McConnell could move the bill far enough to the right to get his support without losing moderates.The draft will also face the test of whether its provisions pass muster under the Senate’s complex rules for budget reconciliation, which would allow Republican to circumvent a Democratic filibuster. Aides on Thursday acknowledged that “there will be ongoing discussions with the Parliamentarian” in the Senate about certain parts of the bill.The Senate proposal targets abortion coverage by prohibiting the use of tax credits to buy insurance plans that cover the procedure, and it would ban funds from going to Planned Parenthood. Those provisions could jeopardize the support of two moderate Republicans, Senators Susan Collins of Maine and Lisa Murkowski of Alaska, who have said they oppose restricting federal funding to Planned Parenthood. A spokeswoman for Collins, Annie Clark, said Thursday she would be reviewing the bill into the weekend. “She has a number of concerns and will be particularly interested in examining the forthcoming CBO analysis on the impact on insurance coverage, the effect on insurance premiums, and the changes in the Medicaid program,” Clark said.The Senate bill also allows states to opt out of some of Obamacare’s insurance regulations, but it does not allow waivers that would let insurance companies charge higher rates to people with preexisting conditions. “We’re not touching preexisting conditions,” one top GOP staffer told reporters on a Thursday conference call. While the House bill created a new waiver system aimed at allowing states to get around Obamacare requirements, the Senate expands an existing waiver in the current law to make it easier for states to apply. The provision, aides said, would allow insurance companies in states that obtain waivers to sell plans that do not provide essential health benefits, including maternity care, hospitalization, and mental-health treatment.Unlike the House bill, the Senate proposal contains funding for cost-sharing payments for insurers to help stabilize the faltering individual insurance market under Obamacare. They would continue through 2019 before being repealed entirely. The payments are the subject of a lawsuit that House Republicans filed against the Obama administration three years ago, and while the Trump administration has continued the subsidies, its refusal to guarantee them over the long term has prompted more insurers to exit the ACA exchanges.McConnell has drawn criticism from senators in both parties for writing the bill behind closed doors without public hearings, though it’s unclear if the mounting frustration among some Republican senators about the process will threaten the legislation’s passage. In a floor speech on Thursday morning, the majority leader said senators would have “ample time” to review and amend the bill before a final vote. The Congressional Budget Office said it would release its analysis of the Senate bill’s cost and impact on insurance early next week. It found that the House bill would leave 23 million more people uninsured over the next decade while reducing average premiums depending on whether states opted out of Obamacare’s insurance regulations.“We debated many policy proposals. We considered many different viewpoints,” McConnell said. “In the end, we found that we share many ideas about what needs to be achieved and how we can achieve it. These shared policy objectives and the solutions to help achieve them are what make up the health care discussion draft that we talked through this morning.”Senate budget rules call for what’s known as a “vote-a-rama” where members of either party offer amendments in a single session. And in many ways, it appears McConnell’s draft is designed to be amended. The bill, for example, does not include funding for the opioid crisis that Senators Rob Portman of Ohio, Shelley Moore Capito of West Virginia, and others were demanding. Nor does it adopt their proposal for a longer, seven-year phase-out of the Medicaid expansion. But by omitting those provisions at the front end, McConnell could be inviting Portman, Capito, and other wavering senators to add them by amendment so they can claim credit for improving the bill when it comes to the floor. Similarly, the statement Paul, Cruz, Lee, and Johnson appeared to be a play for changes that could win their ultimate support.Republicans have a razor-thin majority of 52 seats, and McConnell can lose no more than two votes to pass the bill with a tie-breaker from Vice President Mike Pence. The majority leader will also face difficulty securing support from conservatives who feel the proposal doesn’t go far enough in dismantling Obamacare.https://www.theatlantic.com/politics/archive/2017/06/whats-in-the-senate-republican-health-care-bill/531258/

Mark Levin’s new book, “Rediscovering Americanism,” an assault on the media and progressives and a call for Americans to take back their country, debuts today at No. 1 on Amazon.

Showing the draw of the New York Times bestselling author and top syndicated radio host, his book is already on the way to becoming another big seller.

“My new book covers a lot of territory — philosophy, history, economics, law, culture, etc. And I look deeply into what is meant by Americanism, republicanism, individualism, capitalism. What do we mean by natural law, unalienable rights, liberty, and property rights? From where do these principles come? Why are they important?” he told Secrets.

It follows in the path of his other books and the nation: Liberty and Tyranny: A Conservative Manifesto; Ameritopia: The Unmaking of America; The Liberty Amendments; and Plunder and Deceit.

In the book, Levin attacks the embrace by the media, politicians, and academia of progressive promises of a “utopia” defined by the end of personal freedom and individuality.

He has a grim name for it: “The Final Outcome.” Levin wrote, “They reject history’s lessons and instead are absorbed with their own conceit and aggrandizement in the relentless pursuit of a diabolical project, the final outcome of which is an oppression of mind and soul.”

Levin added, “the equality they envision but dare not honestly proclaim, is life on the hamster wheel, where one individual is indistinguishable from the next.”

Paul Bedard, the Washington Examiner’s “Washington Secrets” columnist, can be contacted at pbedard@washingtonexaminer.com

Dems face identity crisis

Democrats are grappling with how to keep their progressive base happy while winning over white working-class voters who left the party in the 2016 elections.

Defections by blue-collar voters cost Democrat Hillary Clinton the states of Michigan, Pennsylvania and Wisconsin, all of which went to President Trump. It was the first time since 1988 that a GOP presidential candidate had won Michigan or Pennsylvania, and the first time since 1984 in Wisconsin.

The fallout has created an identity crisis for a Democratic Party seeking to find its way forward in the post-Obama era.

A string of House special election losses culminating in Democrat Jon Ossoff’s disappointing defeat in Georgia last week has only intensified the scrutiny and second-guessing of Democratic strategy, to say nothing of the hand-wringing by party activists craving a victory.

“I’m not convinced we know what the best thing is for the party right now,” said Democratic strategist Jim Manley. “I’m not convinced we have the answers.”

Democrats trying to figure out what they’re doing wrong are focused on how they’ve seemingly lost a significant part of the Democratic base all while failing to turn out enough progressives.

There are different views about what to do across the party, with some questioning whether the white working-class voters can be won back by a party that seems to be tilting leftward with the rise of Sen. Bernie Sanders(I-Vt.) and other liberal voices.

“I’ve spoken to some folks who think we have to only choose one or the other,” said one former senior aide to President Barack Obama. “And after this election cycle, I think there are some who believe there may be some truth to that.”

A lot depends on whether the party can find the right candidate with the right message, particularly in 2020.

“Democrats need a reason for showing up. Give them a reason to believe, and we won’t be having this discussion,” the former Obama aide said.

Democrats say there is a way to appeal to both progressives and white working-class voters.

“Everybody is being too simplistic,” Democratic strategist Jamal Simmons said. “Voters are much more complex.”

Simmons said it’s not a matter of choosing to talk about police violence and climate change or the minimum wage and creating jobs.

Progressives, he said, want Democrats to talk about all of that.

They “want politicians to say something about Black Lives Matter and equality — they also want to know how they’re going to get their kids through college, pay off their house and get a better job,” he said. “The thing that’s most frustrating to me is this either-or dichotomy.”

Obama’s victories in 2008 and 2012 show Democrats can win over both groups, say some Democrats.

“This crisis is Democrats not realizing their own strengths, or being scared of articulating their core principles, rather than a crisis of having no agenda,” said Julian Zelizer, a professor of history and public affairs at Princeton University.

He said a focus on economics, climate change and being anti-Trump would animate the party.

“These are the places that 2018 candidates need to focus on, because they are ways to distinguish themselves from the GOP and its agenda,” he added. “Then they should continue to use Trump as a unifying theme. Often experts downplay this, but Republicans were very effective at using Obama that way.”

In recent days, particularly since the Ossoff loss, Democrats have been doing a lot of finger-pointing.

There’s been a movement to stop blaming the 2016 presidential election loss on Russia. And there have been calls to cut ties with current Democratic leaders like House Minority Leader Nancy Pelosi (D-Calif.). Some of those calls, within the House, come from lawmakers such as Rep. Tim Ryan (D-Ohio), who is worried about losing the white working class.

On the other end of the spectrum, some say Sanders’s bashing of Democrats has only deepened wounds.

“A lot of people are sick of it,” said Manley, a former adviser to then-Senate Majority Leader Harry Reid (D-Nev.). “The mainstream part of the party has had it up to here with what he’s been saying.”

Some Democrats are seeking to build a bridge between the two groups.

In an interview Sunday on ABC’s “This Week,” Senate Minority Leader Charles Schumer (D-N.Y.) said the party will unveil a “strong, bold, sharp-edged and commonsense economic agenda” in the coming weeks.

Addressing both wings of his party, he added, “I’m talking to Bernie Sanders. I’m talking to Joe Manchin. This is going to be really something that Democrats can be proud of, and I’m excited about it.”

Manchin, a Democratic senator from West Virginia, is among the most centrist members of Schumer’s conference.

Michael Tyler, a spokesman for the Democratic National Committee, said Democrats will look to expand their support across the party.

He acknowledged in an email to The Hill that in order to win elections, Democrats “have to focus on broadening and turning out our base and on reaching out to Americans who cast ballots for Donald Trump or didn’t vote at all.”

Tyler said Democrats are in the process of rebuilding a party “from an organization whose mission was solely to elect the president of the United States to one that organizes to elect Democrats up and down the ballot, from school board to Senate.”

But it may not be as easy as that, some strategists say.

Asked how the party rebounds and lures both working-class and progressive Democrats, Manley admitted: “I don’t have the faintest idea in this point in time. I’m still trying to digest what happened.”

Replacing Obamacare is a make-or-break moment for Republicans

By Hugh HewittJune 25

Sen. Dean Heller (R-Nev.) threw himself off a political cliff last week when he declared full-throated opposition to the Senate version of the Obamacare repeal bill, and it remains to be seen if Heller is hanging by a limb out of sight and can climb back to electoral sanity or has hit rock bottom in his public career.Individual Senate Republicans face different political realities, but the caucus must somehow get the votes necessary to return the revised Obamacare “repeal and replace” bill to the House. To fail to do so is to condemn not only Heller and Arizona’s Sen. Jeff Flake to certain doom but probably others among the eight GOP senators up for reelection. The grass roots’ disgust with this betrayal will be so deep as to endanger every senator, even in deep red states such as Mississippi, Texas and Utah.The political crosswinds and upheavals in the country are already beyond predicting anything, so to add even more cause for grievance by betraying the central promise of the congressional GOP is beyond irresponsible. It is political insanity. Shut the door to the consultants, and throw out the polling senators. If the GOP defaults on its core promise, it is doomed as a party to minority status, probably as early as 2018 and certainly in 2020.

To fail this week almost certainly forfeits the House majority in next year’s midterm elections but perhaps also the Senate’s, and with the latter, the ability to confirm Supreme Court justices and lower court judges, pass budgets under reconciliation, have any chance at serious tax reform and of course approve the crucial repeal of the Defense Department sequestration.

This is of course an imperative vote on saving American health care. Next year, for example, there potentially will be at least 18 counties in Ohio without even a single option for an individuals seeking coverage. The swaths of America where there is only one provider are large and growing. “Choice for consumers” is a delusion, and soaring deductibles have made health care an illusion to millions more.

Obamacare is a catastrophe on its own terms, but the consequences of not passing its repeal are worse even beyond those awful health-care outcomes. It will forfeit every other Republican goal because failing to deliver on the central promise of eight years of debates and campaigns will shatter the credibility every Republican, not just those who block the bill. The party as a whole will be gravely wounded, perhaps beyond healing for a generation or more.

I don’t have to guess about this. I have been talking to the center-right of the country for three hours a day Monday through Friday for the past 17 years. I know the central argument of the conservative activists everywhere in the United States is that Beltway Republicans cannot be trusted to do anything hard. That argument was dented by the discipline with which the GOP put up with the mainstream media and Democrats’ slings and arrows in the fight over replacing Justice Antonin Scalia. Majority Leader Mitch McConnell (Ky.) rightly calculated that to surrender that hill would be to lose not just a political battle but the political war stretching long into the future. It was that big of a deal to the base.

The same is true of Obamacare. To vote “no” on whatever compromise arrives is to express contempt for the Republican Party as a whole – and its grass-roots activists and base voters — and for those ideas it stands for on all major matters, from a strong defense to low taxes to an originalist Supreme Court.

Thus Heller seemed to declare himself a hollow man when he said he could not vote for it, a man without any core beliefs because with his rambling statement he endangered all alleged core GOP beliefs, and thus the GOP will not support him. It isn’t about primaries; primary opponents need not materialize. It is about millions of conservatives who will simply give up on politics.

This is a make-or-break moment for Senate Republicans and the party itself. Sadly, for this conservative, the tone-deafness of Heller may not be unique. It may not even turn out to be particularly rare. We will know in a week. And not one GOP senator will be able to say he or she wasn’t warned.

The Patient Protection and Affordable Care Act, often shortened to the Affordable Care Act (ACA) and nicknamed Obamacare, is a United States federal statute enacted by the 111th United States Congress and signed into law by PresidentBarack Obama on March 23, 2010. Under the act, hospitals and primary physicians would transform their practices financially, technologically, and clinically to drive better health outcomes, lower costs, and improve their methods of distribution and accessibility.

The ACA has caused a significant reduction in the number of people without health insurance, with estimates ranging from 20–24 million additional people covered during 2016.[4][5] Increases in overall healthcare spending have slowed since the law was implemented, including premiums for employer-based insurance plans.[6] The Congressional Budget Office reported in several studies that the ACA would reduce the budget deficit, and that repealing it would increase the deficit.[7][8]

As implementation began, first opponents, then others, and finally the president himself adopted the term “Obamacare” to refer to the ACA.[9]

Provisions

The President and White House Staff react to the House of Representatives passing the bill on March 21, 2010.

The ACA includes provisions to take effect between 2010 and 2020, although most took effect on January 1, 2014. Few areas of the US health care system were left untouched, making it the most sweeping health care reform since the enactment of Medicare and Medicaid in 1965.[15][16][17][19][18] However, some areas were more affected than others. The individual insurance market was radically overhauled, and many of the law’s regulations applied specifically to this market,[15] while the structure of Medicare, Medicaid, and the employer market were largely retained.[16] Most of the coverage gains were made through the expansion of Medicaid,[20] and the biggest cost savings were made in Medicare.[16] Some regulations applied to the employer market, and the law also made delivery system changes that affected most of the health care system.[16] Not all provisions took full effect. Some were made discretionary, some were deferred, and others were repealed before implementation.

Individual insurance

Guaranteed issue prohibits insurers from denying coverage to individuals due to pre-existing conditions. States were required to ensure the availability of insurance for individual children who did not have coverage via their families.

States were required to expand Medicaid eligibility to include individuals and families with incomes up to 133% of the federal poverty level, including adults without disabilities or dependent children.[21] The law provides a 5% “income disregard”, making the effective income eligibility limit for Medicaid 138% of the poverty level.[22]

Dependents were permitted to remain on their parents’ insurance plan until their 26th birthday, including dependents that no longer live with their parents, are not a dependent on a parent’s tax return, are no longer a student, or are married.[23][24]

Among the groups who remained uninsured were:

Illegal immigrants, estimated at around 8 million—or roughly a third of the 23 million projection—are ineligible for insurance subsidies and Medicaid.[25][26] They remain eligible for emergency services.

Subsidies

Households with incomes between 100% and 400% of the federal poverty level were eligible to receive federal subsidies for policies purchased via an exchange.[29][30] Subsidies are provided as an advanceable, refundable tax credits.[31][32] Additionally, small businesses are eligible for a tax credit provided that they enroll in the SHOP Marketplace.[33] Under the law, workers whose employers offer affordable coverage will not be eligible for subsidies via the exchanges. To be eligible the cost of employer-based health insurance must exceed 9.5% of the worker’s household income.

a.^ Note: In 2014, the FPL was $11,800 for a single person and $24,000 for family of four.[39][40] See Subsidy Calculator for specific dollar amount.[41] b.^DHHS and CBO estimate the average annual premium cost in 2014 would have been $11,328 for a family of 4 without the reform.[36]

Premiums were the same for everyone of a given age, regardless of preexisting conditions. Premiums were allowed to vary by enrollee age, but those for the oldest enrollees (age 45-64 average expenses $5,542) could only be three times as large as those for adults (18-24 $1,836).[42]

The purpose of the mandate was to prevent the healthcare system from succumbing to adverse selection, which would result in high premiums for the insured and little coverage (and thus more illness and medical bankruptcy) for the uninsured.[47][50][51] Studies by the CBO, Gruber and Rand Health concluded that a mandate was required.[52][53][54] The mandate increased the size and diversity of the insured population, including more young and healthy participants to broaden the risk pool, spreading costs.[55] Experience in New Jersey and Massachusetts offered divergent outcomes.[50][53][56]

Business

Businesses that employ 50 or more people but do not offer health insurance to their full-time employees pay a tax penalty if the government has subsidized a full-time employee’s healthcare through tax deductions or other means. This is commonly known as the employer mandate.[57][58] This provision was included to encourage employers to continue providing insurance once the exchanges began operating.[59] Approximately 44% of the population was covered directly or indirectly through an employer.[60][61]

Excise taxes

Excise taxes for the Affordable Care Act raised $16.3 billion in fiscal year 2015 (17% of all excise taxes collected by the Federal Government). $11.3 billion was an excise tax placed directly on health insurers based on their market share. The ACA was going to impose a 40% “Cadillac tax” on expensive employer sponsored health insurance but that was postponed until 2018. Annual excise taxes totaling $3 billion were levied on importers and manufacturers of prescription drugs. An excise tax of 2.3% on medical devices and a 10% excise tax on indoor tanning services were applied as well.[62]

Insurance standards

Essential health benefits

The National Academy of Medicine defined the law’s “essential health benefits” as “ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care”[63][64][65][66][67][68][69] and others[70] rated Level A or B by the U.S. Preventive Services Task Force.[71] In determining what would qualify as an essential benefit, the law required that standard benefits should offer at least that of a “typical employer plan”.[68] States may require additional services.[72]

Contraceptives

One provision in the law mandates that health insurance cover “additional preventive care and screenings” for women.[73] The guidelines issued by the Health Resources and Services Administration to implement this provision mandate “[a]ll Food and Drug Administration approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity”.[74] This mandate applies to all employers and educational institutions except for religious organizations.[75][76] These regulations were included on the recommendations of the Institute of Medicine.[77][78]

Risk management

ACA provided three ways to control risk for insurers in the individual and business markets: temporary reinsurance, temporary risk corridors, and permanent risk adjustment.

Risk corridor program

The risk-corridor program was a temporary risk management device defined under the PPACA section 1342[79]:1 to encourage reluctant insurers into the “new and untested” ACA insurance market during the first three years that ACA was implemented (2014–2016). For those years the Department of Health and Human Services (HHS) “would cover some of the losses for insurers whose plans performed worse than they expected. Insurers that were especially profitable, for their part, would have to return to HHS some of the money they earned on the exchanges”[80][81]

According to an article in Forbes, risk corridors “had been a successful part of the Medicare prescription drug benefit, and the ACA’s risk corridors were modeled after Medicare’s Plan D.”[82] They operated on the principle that “more participation would mean more competition, which would drive down premiums and make health insurance more affordable” and “[w]hen insurers signed up to sell health plans on the exchanges, they did so with the expectation that the risk-corridor program would limit their downside losses.”[80] The risk corridors succeeded in attracting ACA insurers. The program did not pay for itself as planned with “accumulated losses” up to $8.3 billion for 2014 and 2015 alone. Authorization had to be given so that HHS could pay insurers from “general government revenues”. Congressional Republicans “railed against” the program as a ‘bailout’ for insurers. Then-Rep. Jack Kingston (R-Ga.), on the Appropriations Committee that funds the Department of Health and Human Services and the Labor Department “[slipped] in a sentence” — Section 227 — in the “massive” appropriationsConsolidated Appropriations Act, 2014 (H.R. 3547) that said that no funds in the discretionary spending bill “could be used for risk-corridor payments.” This effectively “blocked the administration from obtaining the necessary funds from other programs”[83] and placed Congress in a potential breach of contract with insurers who offered qualified health plans, under the Tucker Act[79] as it did not pay the insurers.[84][84]

On February 10, 2017, in the Moda Health v the US Government, Moda, one of the insurers that struggled financially because of the elimination of the risk corridor program, won a “$214-million judgment against the federal government”. Justice Thomas C. Wheeler stated, “the Government “made a promise in the risk corridors program that it has yet to fulfill. Today, the court directs the Government to fulfill that promise. After all, ‘to say to [Moda], ‘The joke is on you. You shouldn’t have trusted us,’ is hardly worthy of our great government.”[85]

Temporary reinsurance

Temporary reinsurance for insurance for insurers against unexpectedly high claims was a program that ran from 2014 through 2016. It was intended to limit insurer losses.[citation needed]

Risk adjustment

Of the three risk management programs, only risk adjustment was permanent. Risk adjustment attempts to spread risk among insurers to prevent purchasers with good knowledge of their medical needs from using insurance to cover their costs (adverse selection). Plans with low actuarial risk compensate plans with high actuarial risk.[citation needed]

All health policies sold in the United States must provide an annual maximum out of pocket (MOOP) payment cap for an individual’s or family’s medical expenses (excluding premiums). After the MOOP payment cap is reached, all remaining costs must be paid by the insurer.[89]

A partial community rating requires insurers to offer the same premium to all applicants of the same age and location without regard to gender or most pre-existing conditions (excluding tobacco use).[90][91][92] Premiums for older applicants can be no more than three times those for the youngest.[93]

The law established four tiers of coverage: bronze, silver, gold and platinum. All categories offer the essential health benefits. The categories vary in their division of premiums and out-of-pocket costs: bronze plans have the lowest monthly premiums and highest out-of-pocket costs, while platinum plans are the reverse.[68][98] The percentages of health care costs that plans are expected to cover through premiums (as opposed to out-of-pocket costs) are, on average: 60% (bronze), 70% (silver), 80% (gold), and 90% (platinum).[99]

Insurers are required to implement an appeals process for coverage determination and claims on all new plans.[88]

Exchanges

Established the creation of health insurance exchanges in all fifty states. The exchanges are regulated, largely online marketplaces, administered by either federal or state government, where individuals and small business can purchase private insurance plans.[102][103][104]

Setting up an exchange gives a state partial discretion on standards and prices of insurance.[105][106] For example, states approve plans for sale, and influence (through limits on and negotiations with private insurers) the prices on offer. They can impose higher or state-specific coverage requirements—including whether plans offered in the state can cover abortion.[107] States without an exchange do not have that discretion. The responsibility for operating their exchanges moves to the federal government.[105]

State waivers

From 2017 onwards, states can apply for a “waiver for state innovation” that allows them to conduct experiments that meet certain criteria.[108] To obtain a waiver, a state must pass legislation setting up an alternative health system that provides insurance at least as comprehensive and as affordable as ACA, covers at least as many residents and does not increase the federal deficit.[109] These states can be exempt from some of ACA’s central requirements, including the individual and employer mandates and the provision of an insurance exchange.[110] The state would receive compensation equal to the aggregate amount of any federal subsidies and tax credits for which its residents and employers would have been eligible under ACA plan, if they cannot be paid under the state plan.[108]

Accountable Care Organizations

The Act allowed the creation of Accountable Care Organizations (ACOs), which are groups of doctors, hospitals and other providers that commit to give coordinated, high quality care to Medicare patients. ACOs were allowed to continue using a fee for service billing approach. They receive bonus payments from the government for minimizing costs while achieving quality benchmarks that emphasize prevention and mitigation of chronic disease. If they fail to do so, they are subject to penalties.[115]

The 1993 Republican alternative, introduced by Senator John Chafee as the Health Equity and Access Reform Today Act, contained a “universal coverage” requirement with a penalty for noncompliance—an individual mandate—as well as subsidies to be used in state-based ‘purchasing groups’.[131] Advocates for the 1993 bill included prominent Republicans such as Senators Orrin Hatch, Chuck Grassley, Bob Bennett and Kit Bond.[132][133] Of 1993’s 43 Republican Senators, 20 supported the HEART Act.[125][134] Another Republican proposal, introduced in 1994 by Senator Don Nickles (R-OK), the Consumer Choice Health Security Act, contained an individual mandate with a penalty provision;[135] however, Nickles subsequently removed the mandate from the bill, stating he had decided “that government should not compel people to buy health insurance”.[136] At the time of these proposals, Republicans did not raise constitutional issues with the mandate; Mark Pauly, who helped develop a proposal that included an individual mandate for George H. W. Bush, remarked, “I don’t remember that being raised at all. The way it was viewed by the Congressional Budget Office in 1994 was, effectively, as a tax.”[125]

Mitt Romney’s Massachusetts went from 90% of its residents insured to 98%, the highest rate in the nation.[137]

In 2006, an insurance expansion bill was enacted at the state level in Massachusetts. The bill contained both an individual mandate and an insurance exchange. Republican Governor Mitt Romney vetoed the mandate, but after Democrats overrode his veto, he signed it into law.[138] Romney’s implementation of the ‘Health Connector’ exchange and individual mandate in Massachusetts was at first lauded by Republicans. During Romney’s 2008 presidential campaign, Senator Jim DeMint praised Romney’s ability to “take some good conservative ideas, like private health insurance, and apply them to the need to have everyone insured”. Romney said of the individual mandate: “I’m proud of what we’ve done. If Massachusetts succeeds in implementing it, then that will be the model for the nation.”[139]

By 2008 many Democrats were considering this approach as the basis for healthcare reform. Experts said that the legislation that eventually emerged from Congress in 2009 and 2010 bore similarities to the 2007 bill[131] and that it was deliberately patterned after Romney’s state healthcare plan.[141]

Healthcare debate, 2008–10

Healthcare reform was a major topic during the 2008 Democratic presidential primaries. As the race narrowed, attention focused on the plans presented by the two leading candidates, Hillary Clinton and the eventual nominee, Barack Obama. Each candidate proposed a plan to cover the approximately 45 million Americans estimated to not have health insurance at some point each year. Clinton’s proposal would have required all Americans to obtain coverage (in effect, an individual mandate), while Obama’s proposal provided a subsidy but rejected the use of an individual mandate.[142][143]

During the general election, Obama said that fixing healthcare would be one of his top four priorities as president.[144] Obama and his opponent, Sen. John McCain, proposed health insurance reforms though they differed greatly. Senator John McCain proposed tax credits for health insurance purchased in the individual market, which was estimated to reduce the number of uninsured people by about 2 million by 2018. Obama proposed private and public group insurance, income-based subsidies, consumer protections, and expansions of Medicaid and SCHIP, which was estimated at the time to reduce the number of uninsured people by 33.9 million by 2018.[145]

After his inauguration, Obama announced to a joint session of Congress in February 2009 his intent to work with Congress to construct a plan for healthcare reform.[146][147] By July, a series of bills were approved by committees within the House of Representatives.[148] On the Senate side, from June to September, the Senate Finance Committee held a series of 31 meetings to develop a healthcare reform bill. This group — in particular, Democrats Max Baucus, Jeff Bingaman and Kent Conrad, along with Republicans Mike Enzi, Chuck Grassley and Olympia Snowe— met for more than 60 hours, and the principles that they discussed, in conjunction with the other committees, became the foundation of the Senate healthcare reform bill.[149][150][151]

However, following the adoption of an individual mandate, Republicans came to oppose the mandate and threatened to filibuster any bills that contained it.[125] Senate minority leader Mitch McConnell, who led the Republican congressional strategy in responding to the bill, calculated that Republicans should not support the bill, and worked to prevent defections:[156]

It was absolutely critical that everybody be together because if the proponents of the bill were able to say it was bipartisan, it tended to convey to the public that this is O.K., they must have figured it out.[157]

Republican Senators, including those who had supported previous bills with a similar mandate, began to describe the mandate as “unconstitutional”. Journalist Ezra Klein wrote in The New Yorker that “a policy that once enjoyed broad support within the Republican Party suddenly faced unified opposition.”[128] Reporter Michael Cooper of The New York Times wrote that: “the provision … requiring all Americans to buy health insurance has its roots in conservative thinking.”[127][134]

The reform negotiations also attracted attention from lobbyists,[158] including deals between certain lobby groups and the advocates of the law to win the support of groups that had opposed past reforms, as in 1993.[159][160] The Sunlight Foundation documented many of the reported ties between “the healthcare lobbyist complex” and politicians in both parties.[161]

During the August 2009 summer congressional recess, many members went back to their districts and held town hall meetings on the proposals. The nascent Tea Party movement organized protests and many conservative groups and individuals attended the meetings to oppose the proposed reforms.[147] Many threats were made against members of Congress over the course of the debate.[162][163]

When Congress returned from recess, in September 2009 President Obama delivered a speech to a joint session of Congress supporting the ongoing Congressional negotiations.[164] He acknowledged the polarization of the debate, and quoted a letter from the late Senator Edward “Ted” Kennedy urging on reform: “what we face is above all a moral issue; that at stake are not just the details of policy, but fundamental principles of social justice and the character of our country.”[165] On November 7, the House of Representatives passed the Affordable Health Care for America Act on a 220–215 vote and forwarded it to the Senate for passage.[147]

Senate

The Senate began work on its own proposals while the House was still working. The United States Constitution requires all revenue-related bills to originate in the House.[166] To formally comply with this requirement, the Senate used H.R. 3590, a bill regarding housing tax changes for service members.[167] It had been passed by the House as a revenue-related modification to the Internal Revenue Code. The bill became the Senate’s vehicle for its healthcare reform proposal, discarding the bill’s original content.[168] The bill ultimately incorporated elements of proposals that were reported favorably by the Senate Health and Financecommittees. With the Republican Senate minority vowing to filibuster, 60 votes would be necessary to pass the Senate.[169] At the start of the 111th Congress, Democrats had only 58 votes; the Senate seat in Minnesota ultimately won by Al Franken was still undergoing a recount, while Arlen Specter was still a Republican (he became a Democrat in April, 2009).

Negotiations were undertaken attempting to satisfy moderate Democrats and to bring Republican senators aboard; particular attention was given to Republicans Bennett, Enzi, Grassley and Snowe. On July 7 Franken was sworn into office, providing a potential 60th vote. On August 25 Ted Kennedy—a longtime healthcare reform advocate—died. Paul Kirk was appointed as Senator Kennedy’s temporary replacement on September 24.

After the Finance Committee vote on October 15, negotiations turned to moderate Democrats. Majority leader Harry Reid focused on satisfying centrists. The holdouts came down to Joe Lieberman of Connecticut, an independent who caucused with Democrats, and conservative Nebraska Democrat Ben Nelson. Lieberman’s demand that the bill not include a public option[153][170] was met,[171] although supporters won various concessions, including allowing state-based public options such as Vermont’s Green Mountain Care.[171][172]

Senate vote by state.

Democratic yes (58)

Independent yes (2)

Republican no (39)

Republican not voting (1)

The White House and Reid addressed Nelson’s concerns[173] during a 13-hour negotiation with two concessions: a compromise on abortion, modifying the language of the bill “to give states the right to prohibit coverage of abortion within their own insurance exchanges”, which would require consumers to pay for the procedure out of pocket if the state so decided; and an amendment to offer a higher rate of Medicaid reimbursement for Nebraska.[147][174] The latter half of the compromise was derisively termed the “Cornhusker Kickback”[175] and was repealed in the subsequent reconciliation amendment bill.

On December 23, the Senate voted 60–39 to end debate on the bill: a cloture vote to end the filibuster. The bill then passed, also 60–39, on December 24, 2009, with all Democrats and two independents voting for it, and all Republicans against (except Jim Bunning, who did not vote).[176] The bill was endorsed by the AMA and AARP.[177]

Obama remained insistent on comprehensive reform. The news that Anthem Blue Cross in California intended to raise premium rates for its patients by as much as 39% gave him new evidence of the need for reform.[182][183] On February 22, he laid out a “Senate-leaning” proposal to consolidate the bills.[184] He held a meeting with both parties’ leaders on February 25. The Democrats decided that the House would pass the Senate’s bill, to avoid another Senate vote.

As per the Congressional Budget Act of 1974, reconciliation cannot be subject to a filibuster. But reconciliation is limited to budget changes, which is why the procedure was not used to pass ACA in the first place; the bill had inherently non-budgetary regulations.[187][188] Although the already-passed Senate bill could not have been passed by reconciliation, most of House Democrats’ demands were budgetary: “these changes—higher subsidy levels, different kinds of taxes to pay for them, nixing the Nebraska Medicaid deal—mainly involve taxes and spending. In other words, they’re exactly the kinds of policies that are well-suited for reconciliation.”[185]

Jim Clyburn and Nancy Pelosi celebrating after the House passes the amended bill on March 21

The remaining obstacle was a pivotal group of pro-life Democrats led by Bart Stupak who were initially reluctant to support the bill. The group found the possibility of federal funding for abortion significant enough to warrant opposition. The Senate bill had not included language that satisfied their concerns, but they could not address abortion in the reconciliation bill as it would be non-budgetary. Instead, Obama issued Executive Order 13535, reaffirming the principles in the Hyde Amendment.[189] This won the support of Stupak and members of his group and assured the bill’s passage.[186][190] The House passed the Senate bill with a 219–212 vote on March 21, 2010, with 34 Democrats and all 178 Republicans voting against it.[191] The next day, Republicans introduced legislation to repeal the bill.[192] Obama signed ACA into law on March 23, 2010.[193] Since passage, Republicans have voted to repeal all or parts of the Affordable Care Act over sixty times; no such attempt by Republicans has been successful.[194] The amendment bill, The Health Care and Education Reconciliation Act, cleared the House on March 21; the Senate passed it by reconciliation on March 25, and Obama signed it on March 30.

Coverage

The law has caused a significant reduction in the number and percentage of people without health insurance. The CDC reported that the percentage of people without health insurance fell from 16.0% in 2010 to 8.9% during the January–June 2016 period.[195] The uninsured rate dropped in every congressional district in the U.S. between 2013 and 2015.[196] The Congressional Budget Office reported in March 2016 that there were approximately 12 million people covered by the exchanges (10 million of whom received subsidies to help pay for insurance) and 11 million made eligible for Medicaid by the law, a subtotal of 23 million people. An additional 1 million were covered by the ACA’s “Basic Health Program,” for a total of 24 million.[4] CBO also estimated that the ACA would reduce the net number of uninsured by 22 million in 2016, using a slightly different computation for the above figures totaling ACA coverage of 26 million, less 4 million for reductions in “employment-based coverage” and “non-group and other coverage.”[4]

The Department of Health and Human Services (HHS) estimated that 20.0 million adults (aged 18–64) gained healthcare coverage via ACA as of February 2016, a 2.4 million increase over September 2015. HHS estimated that this 20.0 million included: a) 17.7 million from the start of open enrollment in 2013-2016; and b) 2.3 million young adults aged 19–25 who initially gained insurance from 2010-2013, as they were allowed to remain on their parent’s plans until age 26. Of the 20.0 million, an estimated 6.1 million were aged 19–25.[5] Similarly, the Urban Institute issued a report in in December 2016 that said that about 19.2 million non-elderly Americans had gained health insurance coverage from 2010 to 2015.[197] In March 2016, the CBO reported that there were approximately 27 million people without insurance in 2016, a figure they expected would range from 26-28 million through 2026. CBO also estimated the percentage of insured among all U.S. residents would remain at 90% through that period, 92-93% excluding unauthorized immigrants.[4]

Those states that expanded Medicaid had a 7.3% uninsured rate on average in the first quarter of 2016, while those that did not expand Medicaid had a 14.1% uninsured rate, among adults aged 18 to 64.[198] As of December 2016 there were 32 states (including Washington DC) that had adopted the Medicaid extension, while 19 states had not.[199]

By 2017, nearly 70% of those on the exchanges could purchase insurance for less than $75/month after subsidies, which rose to offset significant pre-subsidy price increases in the exchange markets.[200] Healthcare premium cost increases in the employer market continued to moderate. For example, healthcare premiums for those covered by employers rose by 69% from 2000-2005, but only 27% from 2010 to 2015,[6] with only a 3% increase from 2015 to 2016.[201]

The ACA also helps reduce income inequality measured after taxes, due to higher taxes on the top 5% of income earners and both subsidies and Medicaid expansion for lower-income persons.[202] CBO estimated that subsidies paid under the law in 2016 averaged $4,240 per person for 10 million individuals receiving them, roughly $42 billion. For scale, the subsidy for the employer market, in the form of exempting from taxation those health insurance premiums paid on behalf of employees by employers, was approximately $1,700 per person in 2016, or $266 billion total in the employer market. The employer market subsidy was not changed by the law.[4]

Insurance exchanges

As of August 2016, 15 states operated their own exchanges. Other states either used the federal exchange, or operated in partnership with or supported by the federal government.[203]

Medicaid expansion

As of December 2016 there were 32 states (including Washington DC) that had adopted the Medicaid extension, while 19 states had not.[199] Those states that expanded Medicaid had a 7.3% uninsured rate on average in the first quarter of 2016, while those that did not expand Medicaid had a 14.1% uninsured rate, among adults aged 18 to 64.[198] Following the Supreme Court ruling in 2012, which held that states would not lose Medicaid funding if they didn’t expand Medicaid under the ACA, several states rejected expanded Medicaid coverage. Over half of the national uninsured population lived in those states.[205] In a report to Congress, the Centers for Medicare and Medicaid Services (CMS) estimated that the cost of expansion was $6,366 per person for 2015, about 49 percent above previous estimates. An estimated 9 million to 10 million people had gained Medicaid coverage, mostly low-income adults.[206] The Kaiser Family Foundation estimated in October 2015 that 3.1 million additional people were not covered because of states that rejected the Medicaid expansion.[207]

States that rejected the Medicaid expansion could maintain their Medicaid eligibility thresholds, which in many states were significantly below 133% of the poverty line.[208] Many states did not make Medicaid available to childless adults at any income level.[209] Because subsidies on exchange insurance plans were not available to those below the poverty line, such individuals had no new options.[210][211] For example, in Kansas, where only able-bodied adults with children and with an income below 32% of the poverty line were eligible for Medicaid, those with incomes from 32% to 100% of the poverty level ($6,250 to $19,530 for a family of three) were ineligible for both Medicaid and federal subsidies to buy insurance. Absent children, able-bodied adults were not eligible for Medicaid in Kansas.[205]

Studies of the impact of state decisions to reject the Medicaid expansion calculated that up to 6.4 million people could fall into this status.[212] The federal government initially paid for 100% of the expansion (through 2016). The subsidy tapered to 90% by 2020 and continued to shrink thereafter.[213] Several states argued that they could not afford their 10% contribution.[213][214] Studies suggested that rejecting the expansion would cost more than expanding Medicaid due to increased spending on uncompensated emergency care that otherwise would have been partially paid for by Medicaid coverage,[215]

A 2016 study led by Harvard University health economics professor Benjamin Sommers found that residents of Kentucky and Arkansas, which both accepted the Medicaid expansion, were more likely to receive health care services and less likely to incur emergency room costs or have trouble paying their medical bills than before the expansion. Residents of Texas, which did not accept the Medicaid expansion, did not see a similar improvement during the same period.[216] Kentucky opted for increased managed care, while Arkansas subsidized private insurance. The new Arkansas and Kentucky governors have proposed reducing or modifying their programs. Between 2013 and 2015, the uninsured rate dropped from 42% to 14% in Arkansas and from 40% to 9% in Kentucky, compared with 39% to 32% in Texas. Specific improvements included additional primary and preventive care, fewer emergency departments visits, reported higher quality care, improved health, improved drug affordability, reduced out-of-pocket spending and increased outpatient visits, increased diabetes screening, glucose testing among diabetes patients and regular care for chronic conditions.[217]

A 2016 DHHS study found that states that expanded Medicaid had lower premiums on exchange policies, because they had fewer low-income enrollees, whose health on is worse than that of those with higher income.[218]

Healthcare insurance costs

The law is designed to pay subsidies in the form of tax credits to the individuals or families purchasing the insurance, based on income levels. Higher income consumers receive lower subsidies. While pre-subsidy prices rose considerably from 2016 to 2017, so did the subsidies, to reduce the after-subsidy cost to the consumer. For example, a study published in 2016 found that the average requested 2017 premium increase among 40-year-old non-smokers was about 9 percent, according to an analysis of 17 cities, although Blue Cross Blue Shield proposed increases of 40 percent in Alabama and 60 percent in Texas.[220] However, some or all of these costs are offset by subsidies, paid as tax credits. For example, the Kaiser Foundation reported that for the second-lowest cost “Silver plan” (a plan often selected and used as the benchmark for determining financial assistance), a 40-year old non-smoker making $30,000 per year would pay effectively the same amount in 2017 as they did in 2016 (about $208/month) after the subsidy/tax credit, despite large increases in the pre-subsidy price. This was consistent nationally. In other words, the subsidies increased along with the pre-subsidy price, fully offsetting the price increases.[221]

Healthcare premium cost increases in the employer market continued to moderate after the implementation of the law. For example, healthcare premiums for those covered by employers rose by 69% from 2000-2005, but only 27% from 2010 to 2015,[6] with only a 3% increase from 2015 to 2016.[201] From 2008-2010 (before passage of the ACA) health insurance premiums rose by an average of 10% per year.[222]

Several studies found that the financial crisis and accompanying recession could not account for the entirety of the slowdown and that structural changes likely share at least partial credit.[223][224][225][226] A 2013 study estimated that changes to the health system had been responsible for about a quarter of the recent reduction in inflation.[227] Paul Krawzak claimed that even if cost controls succeed in reducing the amount spent on healthcare, such efforts on their own may be insufficient to outweigh the long-term burden placed by demographic changes, particularly the growth of the population on Medicare.[228]

In a 2016 review of the ACA published in JAMA, Barack Obama himself wrote that from 2010 through 2014 mean annual growth in real per-enrollee Medicare spending was negative, down from a mean of 4.7% per year from 2000 through 2005 and 2.4% per year from 2006 to 2010; similarly, mean real per-enrollee growth in private insurance spending was 1.1% per year over the period, compared with a mean of 6.5% from 2000 through 2005 and 3.4% from 2005 to 2010.[229]

Effect on deductibles and co-payments

While health insurance premium costs have moderated, some of this is because of insurance policies that have a higher deductible, co-payments and out-of-pocket maximums that shift costs from insurers to patients. In addition, many employees are choosing to combine a health savings account with higher deductible plans, making the impact of the ACA difficult to determine precisely.

For those who obtain their insurance through their employer (“group market”), a 2016 survey found that:

Deductibles grew by 63% from 2011 to 2016, while premiums increased 19% and worker earnings grew by 11%.

In 2016, 4 in 5 workers had an insurance deductible, which averaged $1,478. For firms with less than 200 employees, the deductible averaged $2,069.

The percentage of workers with a deductible of at least $1,000 grew from 10% in 2006 to 51% in 2016. The 2016 figure drops to 38% after taking employer contributions into account.[230]

For the “non-group” market, of which two-thirds are covered by the ACA exchanges, a survey of 2015 data found that:

49% had individual deductibles of at least $1,500 ($3,000 for family), up from 36% in 2014.

Many marketplace enrollees qualify for cost-sharing subsidies that reduce their net deductible.

While about 75% of enrollees were “very satisfied” or “somewhat satisfied” with their choice of doctors and hospitals, only 50% had such satisfaction with their annual deductible.

While 52% of those covered by the ACA exchanges felt “well protected” by their insurance, in the group market 63% felt that way.[231]

Health outcomes

Insurance coverage helps save lives, by encouraging early detection and prevention of dangerous medical conditions. According to a 2014 study, the ACA likely prevented an estimated 50,000 preventable patient deaths from 2010 to 2013.[232]City University public health professors David Himmelstein and Steffie Woolhandler wrote in January 2017 that a rollback of the ACA’s Medicaid expansion alone would cause an estimated 43,956 deaths annually.[233]

Federal deficit

CBO estimates of revenue and impact on deficit

The CBO reported in several studies that the ACA would reduce the deficit, and that repealing it would increase the deficit.[7][8][234][235] The 2011 comprehensive CBO estimate projected a net deficit reduction of more than $200 billion during the 2012–2021 period:[8][236] it calculated the law would result in $604 billion in total outlays offset by $813 billion in total receipts, resulting in a $210 billion net deficit reduction.[8] The CBO separately predicted that while most of the spending provisions do not begin until 2014,[237][238] revenue would exceed spending in those subsequent years.[239] The CBO claimed that the bill would “substantially reduce the growth of Medicare’s payment rates for most services; impose an excise tax on insurance plans with relatively high premiums; and make various other changes to the federal tax code, Medicare, Medicaid, and other programs”[240]—ultimately extending the solvency of the Medicare trust fund by 8 years.[241]

The CBO in June 2015 forecasted that repeal of ACA would increase the deficit between $137 billion and $353 billion over the 2016–2025 period, depending on the impact of macroeconomic feedback effects. The CBO also forecasted that repeal of ACA would likely cause an increase in GDP by an average of 0.7% in the period from 2021 to 2015, mainly by boosting the supply of labor.[7]

Although the CBO generally does not provide cost estimates beyond the 10-year budget projection period because of the degree of uncertainty involved in the projection, it decided to do so in this case at the request of lawmakers, and estimated a second decade deficit reduction of $1.2 trillion.[240][247] CBO predicted deficit reduction around a broad range of one-half percent of GDP over the 2020s while cautioning that “a wide range of changes could occur”.[248]

Opinions on CBO projections

The CBO cost estimates were criticized because they excluded the effects of potential legislation that would increase Medicare payments by more than $200 billion from 2010 to 2019.[249][250][251] However, the so-called “doc fix” is a separate issue that would have existed whether or not ACA became law – omitting its cost from ACA was no different from omitting the cost of other tax cuts.[252][253][254]

Uwe Reinhardt, a Princeton health economist, wrote. “The rigid, artificial rules under which the Congressional Budget Office must score proposed legislation unfortunately cannot produce the best unbiased forecasts of the likely fiscal impact of any legislation”, but went on to say “But even if the budget office errs significantly in its conclusion that the bill would actually help reduce the future federal deficit, I doubt that the financing of this bill will be anywhere near as fiscally irresponsible as was the financing of the Medicare Modernization Act of 2003.”[255]Douglas Holtz-Eakin, CBO director during the George W. Bush administration, who later served as the chief economic policy adviser to U.S. Senator John McCain‘s 2008 presidential campaign, alleged that the bill would increase the deficit by $562 billion because, he argued, it front-loaded revenue and back-loaded benefits.[256]

Scheiber and Cohn rejected critical assessments of the law’s deficit impact, arguing that predictions were biased towards underestimating deficit reduction. They noted that for example, it is easier to account for the cost of definite levels of subsidies to specified numbers of people than account for savings from preventive healthcare, and that the CBO had a track record of overestimating costs and underestimating savings of health legislation;[257][258] stating, “innovations in the delivery of medical care, like greater use of electronic medical records[259] and financial incentives for more coordination of care among doctors, would produce substantial savings while also slowing the relentless climb of medical expenses… But the CBO would not consider such savings in its calculations, because the innovations hadn’t really been tried on such large scale or in concert with one another—and that meant there wasn’t much hard data to prove the savings would materialize.”[257]

In 2010 David Walker, former U.S. Comptroller General then working for The Peter G. Peterson Foundation, stated that the CBO estimates are not likely to be accurate, because they were based on the assumption that the law would not change.[260] The Center on Budget and Policy Priorities objected that Congress had a good record of implementing Medicare savings. According to their study, Congress followed through on the implementation of the vast majority of provisions enacted in the past 20 years to produce Medicare savings, although not the payment reductions addressed by the annual “doc fix”.[261][262]

Economic consequences

CBO estimated in June 2015 that repealing the ACA would:

Decrease aggregate demand (GDP) in the short-term, as low-income persons who tend to spend a large fraction of their additional resources would have fewer resources (e.g., ACA subsidies would be eliminated). This effect would be offset in the long-run by the labor supply factors below.

Increase the supply of labor and aggregate compensation by about 0.8 and 0.9 percent over the 2021-2025 period. CBO cited the ACA’s expanded eligibility for Medicaid and subsidies and tax credits that rise with income as disincentives to work, so repealing the ACA would remove those disincentives, encouraging workers to supply more hours of labor.

Increase the total number of hours worked by about 1.5% over the 2021-2025 period.

The CBO estimated that the ACA would slightly reduce the size of the labor force and number of hours worked, as some would no longer be tethered to employers for their insurance. Cohn, citing CBO’s projections, claimed that ACA’s primary employment effect was to alleviate job lock: “People who are only working because they desperately need employer-sponsored health insurance will no longer do so.”[265] He concluded that the “reform’s only significant employment impact was a reduction in the labor force, primarily because people holding onto jobs just to keep insurance could finally retire”, because they have health insurance outside of their jobs.[266]

Employer mandate and part-time work

The employer mandate requires employers meeting certain criteria to provide health insurance to their workers. The mandate applies to employers with more than 50 employees that do not offer health insurance to their full-time workers.[267] Critics claimed that the mandate created a perverse incentive for business to keep their full-time headcount below 50 and to hire part-time workers instead.[268][269] Between March 2010 and 2014 the number of part-time jobs declined by 230,000, while the number of full-time jobs increased by 2 million.[270][271] In the public sector full-time jobs turned into part-time jobs much more than in the private sector.[270][272] A 2016 study found only limited evidence that ACA had increased part-time employment.[273]

Several businesses and the state of Virginia added a 29-hour-a-week cap for their part-time employees,[274][unreliable source?][275][unreliable source?] to reflect the 30-hour-or-more definition for full-time worker.[267] As of yet, however, only a small percent of companies have shifted their workforce towards more part-time hours (4% in a survey from the Federal Reserve Bank of Minneapolis).[269] Trends in working hours[276] and the effects of the Great Recessioncorrelate with part-time working hour patterns.[277][278] The impact of this provision may have been offset by other factors, including that health insurance helps attract and retain employees, increases productivity and reduces absenteeism; and the lower training and administration costs of a smaller full-time workforce over a larger part-time work force.[269][276][279] Relatively few firms employ over 50 employees[269] and more than 90% of them offered insurance.[280] Workers without employer insurance could purchase insurance on the exchanges.[281]

Most policy analysts (on both right and left) were critical of the employer mandate provision.[268][280] They argued that the perverse incentives regarding part-time hours, even if they did not change existing plans, were real and harmful;[282][283] that the raised marginal cost of the 50th worker for businesses could limit companies’ growth;[284] that the costs of reporting and administration were not worth the costs of maintaining employer plans;[282][283] and noted that the employer mandate was not essential to maintain adequate risk pools.[285][286] The effects of the provision generated vocal opposition from business interests and some unions not granted exemptions.[283][287]

A 2013/4 survey by the National Association for Business Economics found that about 75 percent of those surveyed said ACA hadn’t influenced their planning or expectations for 2014, and 85 percent said the law wouldn’t prompt a change in their hiring practices. Some 21 percent of 64 businesses surveyed said that the act would have a harmful effect and 5 percent said it would be beneficial.[288]

Hospitals

From the start of 2010 to November 2014, 43 hospitals in rural areas closed. Critics claimed that the new law caused these hospitals to close. Many of these rural hospitals were built using funds from the 1946 Hill–Burton Act, to increase access to medical care in rural areas. Some of these hospitals reopened as other medical facilities, but only a small number operated emergency rooms (ER) or urgent care centers.[289]

Between January 2010 and 2015, a quarter of emergency room doctors said they had seen a major surge in patients, while nearly half had seen a smaller increase. Seven in ten ER doctors claimed that they lacked the resources to deal with large increases in the number of patients. The biggest factor in the increased number of ER patients was insufficient primary care providers to handle the larger number of insured patients.[290]

Insurers claimed that because they have access to and collect patient data that allow evaluations of interventions, they are essential to ACO success. Large insurers formed their own ACOs. Many hospitals merged and purchased physician practices. The increased market share gave them more leverage in negotiations with insurers over costs and reduced patient care options.[115]

Public opinion

Prior to the law’s passage, polling indicated the public’s views became increasingly negative in reaction to specific plans discussed during the legislative debate over 2009 and 2010. Polling statistics showed a general negative opinion of the law; with those in favor at approximately 40% and those against at 51%, as of October 2013.[291][292] About 29% of whites approve of the law, compared with 61% of Hispanics and 91% of African Americans.[293]Opinions were divided by age of the person at the law’s inception, with a solid majority of seniors opposing the bill and a solid majority of those younger than forty years old in favor.[294]

Congressional Democrats celebrating the 6th anniversary of the Affordable Care Act in March 2016 on the steps of the U.S. Capitol.

Specific elements were popular across the political spectrum, while others, such as the mandate to purchase insurance, were widely disliked. In a 2012 poll 44% supported the law, with 56% against. By party affiliation, 75% of Democrats, 27% of Independents and 14% of Republicans favored the law overall. 82% favored banning insurance companies from denying coverage to people with pre-existing conditions, 61% favored allowing children to stay on their parents’ insurance until age 26, 72% supported requiring companies with more than 50 employees to provide insurance for their employees, and 39% supported the individual mandate to own insurance or pay a penalty. By party affiliation, 19% of Republicans, 27% of Independents, and 59% of Democrats favored the mandate.[295] Other polls showed additional provisions receiving majority support, including the creation of insurance exchanges, pooling small businesses and the uninsured with other consumers so that more people can take advantage of large group pricing benefits and providing subsidies to individuals and families to make health insurance more affordable.[296][297]

In a 2010 poll, 62% of respondents said they thought ACA would “increase the amount of money they personally spend on health care”, 56% said the bill “gives the government too much involvement in health care”, and 19% said they thought they and their families would be better off with the legislation.[298] Other polls found that people were concerned that the law would cost more than projected and would not do enough to control costs.[299]

Some opponents believed that the reform did not go far enough: a 2012 poll indicated that 71% of Republican opponents rejected it overall, while 29% believed it did not go far enough; independent opponents were divided 67% to 33%; and among the much smaller group of Democratic opponents, 49% rejected it overall and 51% wanted more.[295] In June 2013, a majority of the public (52–34%) indicated a desire for “Congress to implement or tinker with the law rather than repeal it”.[300] After the Supreme Court upheld the individual mandate, a 2012 poll held that “most Americans (56%) want to see critics of President Obama’s health care law drop efforts to block it and move on to other national issues”.[301]A 2014 poll reported that 48.9% of respondents had an unfavorable view of ACA vs. 38.3% who had a favorable view (of more than 5,500 individuals).[302]

A 2014 poll reported that 26% of Americans support ACA.[303] Another held that 8% of respondents say that the Affordable Care Act “is working well the way it is”.[304] In late 2014, a Rasmussen poll reported Repeal: 30%, Leave as is: 13%, Improve: 52%.[305]

In 2015, a CBS News / New York Times poll reported that 47% of Americans approved the health care law. This was the first time that a major poll indicated that more respondents approved ACA than disapproved of it.[306] The recurring Kaiser Health Tracking Poll from December 2016 reported that: a) 30% wanted to expand what the law does; b) 26% wanted to repeal the entire law; c) 19% wanted to move forward with implementing the law as it is; and d) 17% wanted to scale back what the law does, with the remainder undecided.[307]

Separate polls from Fox News and NBC/WSJ both taken during January 2017 indicated more people viewed the law favorably than did not for the first time. One of the reasons for the improving popularity of the law is that Democrats who opposed it in the past (many prefer a “Medicare for All” approach) have shifted their positions since the ACA is under threat of repeal.[308]

A January 2017 Morning Consult poll showed that 35% of respondents either believed that “Obamacare” and the “Affordable Care Act” were different or did not know.[309] Approximately 45% were unsure whether the “repeal of Obamacare” also meant the “repeal of the Affordable Care Act.”[309] 39% did not know that “many people would lose coverage through Medicaid or subsidies for private health insurance if the A.C.A. were repealed and no replacement enacted,” with Democrats far more likely (79%) to know that fact than Republicans (47%).[309]

A 2017 study found that personal experience with public health insurance programs leads to greater support for the Affordable Care Act, and the effects appear to be most pronounced among Republicans and low-information voters.[310]

Political aspects

“Obamacare”

The term “Obamacare” was originally coined by opponents as a pejorative. The term emerged in March 2007 when healthcare lobbyist Jeanne Schulte Scott used it in a health industry journal, writing “We will soon see a ‘Giuliani-care’ and ‘Obama-care’ to go along with ‘McCain-care’, ‘Edwards-care’, and a totally revamped and remodeled ‘Hillary-care‘ from the 1990s”.[9][311] According to research by Elspeth Reeve, the expression was used in early 2007, generally by writers describing the candidate’s proposal for expanding coverage for the uninsured.[312] It first appeared in a political campaign by Mitt Romney in May 2007 in Des Moines, Iowa. Romney said, “In my state, I worked on healthcare for some time. We had half a million people without insurance, and I said, ‘How can we get those people insured without raising taxes and without having government take over healthcare?’ And let me tell you, if we don’t do it, the Democrats will. If the Democrats do it, it will be socialized medicine; it’ll be government-managed care. It’ll be what’s known as Hillarycare or Barack Obamacare, or whatever you want to call it.”[9]

By mid-2012, Obamacare had become the colloquial term used by both supporters and opponents. In contrast, the use of “Patient Protection and Affordable Care Act” or “Affordable Care Act” became limited to more formal and official use.[312] Use of the term in a positive sense was suggested by Democrat John Conyers.[313] Obama endorsed the nickname, saying, “I have no problem with people saying Obama cares. I do care.”[314]

In March 2012, the Obama reelection campaign embraced the term “Obamacare”, urging Obama’s supporters to post Twitter messages that begin, “I like #Obamacare because…”.[315]

In October 2013 the Associated Press and NPR began cutting back on use of the term.[316] Stuart Seidel, NPR’s managing editor, said that the term “seems to be straddling somewhere between being a politically-charged term and an accepted part of the vernacular”.[317]

Common misconceptions

“Death panels”

On August 7, 2009, Sarah Palin pioneered the term “death panels” to describe groups that would decide whether sick patients were “worthy” of medical care.[318] “Death panel” referred to two claims about early drafts.

One was that under the law, seniors could be denied care due to their age[319] and the other that the government would advise seniors to end their lives instead of receiving care. The ostensible basis of these claims was the provision for an Independent Payment Advisory Board (IPAB).[320] IPAB was given the authority to recommend cost-saving changes to Medicare by facilitating the adoption of cost-effective treatments and cost-recovering measures when the statutory levels set for Medicare were exceeded within any given 3-year period. In fact, the Board was prohibited from recommending changes that would reduce payments to certain providers before 2020, and was prohibited from recommending changes in premiums, benefits, eligibility and taxes, or other changes that would result in rationing.[321][322]

The other related issue concerned advance-care planning consultation: a section of the House reform proposal would have reimbursed physicians for providing patient-requested consultations for Medicare recipients on end-of-life health planning (which is covered by many private plans), enabling patients to specify, on request, the kind of care they wished to receive.[323] The provision was not included in ACA.[324]

Illegal immigrants

Exchange “death spiral”

One argument against the ACA is that the insurers are leaving the marketplaces, as they cannot profitably cover the available pool of customers, which contains too many unhealthy participants relative to healthy participants. A scenario where prices rise, due to an unfavorable mix of customers from the insurer’s perspective, resulting in fewer customers and fewer insurers in the marketplace, further raising prices, has been called a “Death Spiral.”[339]During 2017, the median number of insurers offering plans on the ACA exchanges in each state was 3.0, meaning half the states had more and half had fewer insurers. There were five states with one insurer in 2017; 13 states with two; 11 states with three; and the remainder had four insurers or more. Wisconsin had the most, with 15 insurers in the marketplace. The median number of insurers was 4.0 in 2016, 5.0 in 2015, and 4.0 in 2014.[340]

Further, the CBO reported in January 2017 that it expected enrollment in the exchanges to rise from 10 million during 2017 to 13 million by 2027, assuming laws in place at the end of the Obama administration were continued.[341]Following a 2015 CBO report that reached a similar conclusion, Paul Krugman wrote: “But the truth is that this report is much, much closer to what supporters of reform have said than it is to the scare stories of the critics–no death spirals, no job-killing, major gains in coverage at relatively low cost.”[342]

Opposition

Opposition and efforts to repeal the legislation have drawn support from sources that include labor unions,[343][344]conservative advocacy groups,[345][346] Republicans, small business organizations and the Tea Party movement.[347]These groups claimed that the law would disrupt existing health plans, increase costs from new insurance standards, and increase the deficit.[348] Some opposed the idea of universal healthcare, viewing insurance as similar to other unsubsidized goods.[349][350] President Donald Trump has repeatedly promised to “repeal and replace” it.[351][352]

In October 2016, Mark Dayton, the governor of Minnesota and a member of the Minnesota Democratic–Farmer–Labor Party, said that the ACA had “many good features” but that it was “no longer affordable for increasing numbers of people” and called on the Minnesota legislature to provide emergency relief to policyholders.[354] Dayton later said he regretted his remarks after they were seized on by Republicans seeking to repeal the law.[355]

The Court further determined that states could not be forced to participate in the Medicaid expansion. ACA withheld all Medicaid funding from states declining to participate in the expansion. The Court ruled that this withdrawal of funding was unconstitutionally coercive and that individual states had the right to opt out without losing preexisting Medicaid funding.[358]

On June 25, 2015, the U.S. Supreme Court ruled 6–3 that federal subsidies for health insurance premiums could be used in the 34 states that did not set up their own insurance exchanges.[361]

House v. Price

In United States House of Representatives v. Price (previously United States House of Representatives v. Burwell) the House sued the administration alleging that the money for premium subsidy payments to insurers had not been appropriated, as required for any federal government spending. The ACA subsidy that helps customers pay premiums was not part of the suit.

Without the cost-sharing subsidies, the government estimated that premiums would increase by 20 percent to 30 percent for silver plans.[362] In 2017, the uncertainty about whether the payments would continue caused Blue Cross Blue Shield of North Carolina to try to raise premiums by 22.9 percent the next year, as opposed to an increase of only 8.8 percent that it would have sought if the payments were assured.[363]

Non-cooperation

Officials in Texas, Florida, Alabama, Wyoming, Arizona, Oklahoma and Missouri opposed those elements of ACA over which they had discretion.[364][365] For example, Missouri declined to expand Medicaid or establish a health insurance marketplace engaging in active non-cooperation, enacting a statute forbidding any state or local official to render any aid not specifically required by federal law.[366] Other Republican politicians discouraged efforts to advertise the benefits of the law. Some conservative political groups launched ad campaigns to discourage enrollment.[367][368]

Repeal efforts

ACA was the subject of unsuccessful repeal efforts by Republicans in the 111th, 112th, and 113th Congresses: Representatives Steve King (R-IA) and Michele Bachmann (R-MN) introduced bills in the House to repeal ACA the day after it was signed, as did Senator Jim DeMint (R-SC) in the Senate.[369] In 2011, after Republicans gained control of the House of Representatives, one of the first votes held was on a bill titled “Repealing the Job-Killing Health Care Law Act” (H.R. 2), which the House passed 245–189.[370] All Republicans and 3 Democrats voted for repeal.[371] House Democrats proposed an amendment that repeal not take effect until a majority of the Senators and Representatives had opted out of the Federal Employees Health Benefits Program; Republicans voted down the measure.[372] In the Senate, the bill was offered as an amendment to an unrelated bill, but was voted down.[373]President Obama had stated that he would have vetoed the bill even if it had passed both chambers of Congress.[374]

2017 House Budget

Following the 2012 Supreme Court ruling upholding ACA as constitutional, Republicans held another vote to repeal the law on July 11;[375] the House of Representatives voted with all 244 Republicans and 5 Democrats in favor of repeal, which marked the 33rd, partial or whole, repeal attempt.[376][377] On February 3, 2015, the House of Representatives added its 67th repeal vote to the record (239 to 186). This attempt also failed.[378]

2013 federal government shutdown

Strong partisan disagreement in Congress prevented adjustments to the Act’s provisions.[379] However, at least one change, a proposed repeal of a tax on medical devices, has received bipartisan support.[380] Some Congressional Republicans argued against improvements to the law on the grounds they would weaken the arguments for repeal.[283][381]

Republicans attempted to defund its implementation,[365][382] and in October 2013, House Republicans refused to fund the federal government unless accompanied with a delay in ACA implementation, after the President unilaterally deferred the employer mandate by one year, which critics claimed he had no power to do. The House passed three versions of a bill funding the government while submitting various versions that would repeal or delay ACA, with the last version delaying enforcement of the individual mandate. The Democratic Senate leadership stated the Senate would only pass a “clean” funding bill without any restrictions on ACA. The government shutdown began on October 1.[383][384][385] Senate Republicans threatened to block appointments to relevant agencies, such as the Independent Payment Advisory Board[386] and Centers for Medicare and Medicaid Services.[387][388]

2017 repeal effort

During a midnight congressional session starting January 11, 2017, the Senate of the 115th Congress of the United States voted to approve a “budget blueprint” which would allow Republicansto repeal parts of the law “without threat of a Democraticfilibuster.”[389][390] The plan, which passed 51-48, is a budget blueprint named by Senate Republicans the “Obamacare ‘repeal resolution.'”[391] Democrats opposing the resolution staged a protest during the vote.[392]

On May 4, 2017, the United States House of Representatives voted to pass the American Health Care Act (and thereby repeal most of the Affordable Care Act) by a narrow margin of 217 to 213, sending the bill to the Senate for deliberation.[395] The Senate has indicated they will write their own version of the bill, instead of voting on the House version.[396]

Implementation history

Once the law was signed, provisions began taking effect, in a process that continued for years. Some provisions never took effect, while others were deferred for various periods.

Existing individual health plans

Plans purchased after the date of enactment, March 23, 2010, or old plans that changed in specified ways would eventually have to be replaced by ACA-compliant plans.[citation needed]

At various times during and after the ACA debate, Obama stated that “if you like your health care plan, you’ll be able to keep your health care plan”.[397][398] However, in fall 2013 millions of Americans with individual policies received notices that their insurance plans were terminated,[399] and several million more risked seeing their current plans cancelled.[400][401][402]

Obama’s previous unambiguous assurance that consumers’ could keep their own plans became a focal point for critics, who challenged his truthfulness.[403][404] On November 7, 2013, President Obama stated: “I am sorry that [people losing their plans] are finding themselves in this situation based on assurances they got from me.”[405] Various bills were introduced in Congress to allow people to keep their plans.[406]

In the fall of 2013, the Obama Administration announced a transitional relief program that would let states and carriers allow non-compliant individual and small group policies to renew at the end of 2013. In March 2014, HHS allowed renewals as late as October 1, 2016. In February 2016, these plans were allowed to renew up until October 1, 2017, but with a termination date no later than December 31, 2017.[citation needed]

2010

In June small business tax credits took effect. For certain small businesses, the credits reached up to 35% of premiums. At the same time uninsured people with pre-existing conditions could access the federal high-risk pool. Also, participating employment-based plans could obtain reimbursement for a portion of the cost of providing health insurance to early retirees.[407]

In July the Pre-Existing Condition Insurance Plan (PCIP) took effect to offer insurance to those that had been denied coverage by private insurance companies because of a pre-existing condition. Despite estimates of up to 700,000 enrollees, at a cost of approximately $13,000/enrollee, only 56,257 enrolled at a $28,994 cost per enrollee.[407]

2011

As of September 23, 2010, pre-existing conditions could no longer be denied coverage for children’s policies. HHS interpreted this rule as a mandate for “guaranteed issue“, requiring insurers to issue policies to such children.[citation needed] By 2011, insurers had stopped marketing child-only policies in 17 states, as they sought to escape this requirement.[408]

The average beneficiary in the prior coverage gap would have spent $1,504 in 2011 on prescriptions. Such recipients saved an average $603. The 50 percent discount on brand name drugs provided $581 and the increased Medicare share of generic drug costs provided the balance. Beneficiaries numbered 2 million[409]

2013

In January 2013 the Internal Revenue Service ruled that the cost of covering only the individual employee would be considered in determining whether the cost of coverage exceeded 9.5% of income. Family plans would not be considered even if the cost was above the 9.5% income threshold. This was estimated to leave 2–4 million Americans unable to afford family coverage under their employers’ plans and ineligible for subsidies.[413][414]

A June 2013 study found that the MLR provision had saved individual insurance consumers $1.2 billion in 2011 and $2.1 billion in 2012, reducing their 2012 costs by 7.5%.[415] The bulk of the savings were in reduced premiums, but some came from MLR rebates.

The launch for both the state and federal exchanges was troubled due to management and technical failings. HealthCare.gov, the website that offers insurance through the exchanges operated by the federal government, crashed on opening and suffered endless problems.[420] Operations stabilized in 2014, although not all planned features were complete.[421][422]

CMS reported in 2013 that, while costs per capita continued to rise, the rate of increase in annual healthcare costs had fallen since 2002. Per capita cost increases averaged 5.4% annually between 2000 and 2013. Costs relative to GDP, which had been rising, had stagnated since 2009.[423] Several studies attempted to explain the reductions. Reasons included:

Higher unemployment due to the 2008-2010 recession, which limited the ability of consumers to purchase healthcare;

Out-of-pocket costs rose, reducing demand for healthcare services.[424] The proportion of workers with employer-sponsored health insurance requiring a deductible climbed to about three-quarters in 2012 from about half in 2006.[223]

ACA changes[223] that aim to shift the healthcare system from paying-for-quantity to paying-for-quality. Some changes occurred due to healthcare providers acting in anticipation of future implementation of reforms.[120][224]

2014

On July 30, 2014, the Government Accountability Office released a non-partisan study that concluded that the administration did not provide “effective planning or oversight practices” in developing the ACA website.[425]

In Burwell v. Hobby Lobby the Supreme Court exempted closely held corporations with religious convictions from the contraception rule.[426] In Wheaton College vs Burwell the Court issued an injunction allowing the evangelical college and other religiously affiliated nonprofit groups to completely ignore the contraceptive mandate.[427]

A study found that average premiums for the second-cheapest ( silver) plan were 10-21% less than average individual market premiums in 2013, while covering many more conditions. Credit for the reduced premiums was attributed to increased competition stimulated by the larger market, greater authority to review premium increases, the MLR and risk corridors.[citation needed]

A 2016 analysis found that health care spending by the middle class was 8.9% of household spending in 2014.[429]

2015

By the beginning of the year, 11.7 million had signed up (ex-Medicaid).[430] On December 31, 2015, about 8.8 million consumers had stayed in the program. Some 84 percent, or about 7.4 million, were subsidized.[431]

Bronze plans were the second most popular in 2015, making up 22% of marketplace plan selections. Silver plans were the most popular, accounting for 67% of marketplace selections. Gold plans were 7%. Platinum plans accounted for 3%. On average across the four metal tiers, premiums were up 20% for HMOs and 18% for EPOs. Premiums for POS plans were up 15% from 2015 to 2016, while PPO premiums were up just 8%.[citation needed]

A 2015 study found 14% of privately insured consumers received a medical bill in the past two years from an out-of-network provider in the context of an overall in-network treatment event. Such out-of-network care is not subject to the lower negotiated rates of in-network care, increasing out-of-pocket costs. Another 2015 study found that the average out-of-network charges for the majority of 97 medical procedures examined “were 300% or higher compared to the corresponding Medicare fees” for those services.[citation needed]

Some 47% of the 2015 ACA plans sold on the Healthcare.gov exchange lacked standard out-of-network coverage. Enrollees in such plans, typically received no coverage for out-of-network costs (except for emergencies or with prior authorization). A 2016 study on Healthcare.gov health plans found a 24 percent increase in the percentage of ACA plans that lacked standard out-of-network coverage.[citation needed]

The December spending bill delayed the onset of the “Cadillac tax” on expensive insurance plans by two years, until 2020.[432]

The average price of non-generic drugs rose 16.2% in 2015 and 98.2% since 2011.[429]

2016

As of March 2016 11.1 million people had purchased exchange plans,[citation needed] while an estimated 9 million to 10 million people had gained Medicaid coverage, mostly low-income adults.[206] 11.1 million were still covered, a decline of nearly 13 percent.[433] 6.1 million uninsured 19-25 year olds gained coverage.[434]

Employers

A survey of New York businesses found an increase of 8.5 percent in health care costs, less than the prior year’s survey had expected. A 10 percent increase was expected for 2017. Factors included increased premiums, higher drug costs, ACA and aging workers. Some firms lowered costs by increasing cost-sharing (for higher employee contributions, deductibles and co-payments). 60% planned to further increase cost-sharing. Coverage and benefits were not expected to change. Approximately one fifth said ACA had pushed them to reduce their workforce. A larger number said they were raising prices.[435]

Insurers

The five major national insurers expected to lose money on ACA policies in 2016.[436] UnitedHealth withdrew from the Georgia and Arkansas exchanges for 2017, citing heavy losses.[203] Humana exited other markets, leaving it operating in 156 counties in 11 states for 2017.[437] 225 counties across the country had access to only a single ACA insurer. A study released in May estimated that 664 counties would have one insurer in 2017.[438][not in citation given]

Aetna cancelled planned expansion of its offerings and following an expected $300 million loss in 2016 and then withdrew from 11 of its 15 states.[439] In August 2016 Anthem said that its offerings were losing money, but also that it would expand its participation if a pending merger with Cigna was approved.[440] Aetna and Humana’s exit for 2017 left 8 rural Arizona counties with only Blue Cross/Blue Shield.[441]

Blue Cross/Blue Shield Minnesota announced that it would exit individual and family markets in Minnesota in 2017, due to financial losses of $500 million over three years.[442]

Another analysis found that 17 percent of eligibles may have a single insurer option in 2017. North Carolina, Oklahoma, Alaska, Alabama, South Carolina and Wyoming were expected to have a single insurer,[443] while only 2 percent of 2016 eligibles had only one choice.[444]

Aetna, Humana, UnitedHealth Group also exited various individual markets. Many local Blue Cross plans sharply narrowed their networks. In 2016 two thirds of individual plans were narrow-network HMO plans.[428]

One of the causes of insurer losses is the lower income, older and sicker enrollee population. One 2016 analysis reported that while 81% of the population with incomes from 100-150% of the federal poverty level signed up, only 45% of those from 150-200% did so. The percentage continued to decline as income rose: 2% of those above 400% enrolled.[445]

Costs

The law is designed to pay subsidies in the form of tax credits to the individuals or families purchasing the insurance, based on income levels. Higher income consumers receive lower subsidies. While pre-subsidy prices rose considerably from 2016 to 2017, so did the subsidies, to reduce the after-subsidy cost to the consumer. For example, a study published in 2016 found that the average requested 2017 premium increase among 40-year-old non-smokers was about 9 percent, according to an analysis of 17 cities, although Blue Cross Blue Shield proposed increases of 40 percent in Alabama and 60 percent in Texas.[220] However, some or all of these costs are offset by subsidies, paid as tax credits. For example, the Kaiser Foundation reported that for the second-lowest cost “Silver plan” (a plan often selected and used as the benchmark for determining financial assistance), a 40-year old non-smoker making $30,000 per year would pay effectively the same amount in 2017 as they did in 2016 (about $208/month) after the subsidy/tax credit, despite large increases in the pre-subsidy price. This was consistent nationally. In other words, the subsidies increased along with the pre-subsidy price, fully offsetting the price increases.[221]

Cooperatives

The number of ACA nonprofit insurance cooperatives for 2017 fell from 23 originally to 7 for 2017. The remaining 7 posted annual losses in 2015. A General Accountability Report found that co-ops’ 2015 premiums were generally below average. At the end of 2014, money co-ops and other ACA insurers had counted on risk corridor payments that didn’t materialize. Maryland’s Evergreen Health claims that ACA’s risk-adjustment system does not adequately measure risk.[citation needed]

Medicaid

Newly elected Louisiana Governor John Bel Edwards issued an executive order to accept the expansion, becoming the 32nd state to do so. The program was expected to enroll an additional 300,000 Louisianans.[446]

2017

More than 9.2 million people signed up for care on the national exchange (healthcare.gov) for 2017, down some 400,000 from 2016. This decline was due primarily to the election of President Trump, who pulled advertising encouraging people to sign up for coverage, issued an executive order that attempts to eliminate the mandate, and has created significant uncertainty about the future of the ACA. Enrollments had been running ahead of 2016 prior to President Obama leaving office, with 9.8 million expected to sign-up, so President Trump’s actions potentially cost about 600,000 national enrollments (i.e., 9.8 million expected − 9.2 million actual = 0.6 million impact).[447] Of the 9.2 million, 3.0 million were new customers and 6.2 million were returning. The 9.2 million excludes the 11 states that run their own exchanges, which have signed up around 3 million additional people.[447] These figures also exclude the additional coverage due to the Medicaid expansion, which covers another approximately 10 million persons, as described in the impact section above.

In February, Humana announced that it would withdraw from the individual insurance market in 2018, citing “further signs of an unbalanced risk pool.”[448] That month the IRS announced that it would not require that tax returns indicate that a person has health insurance, reducing the effectiveness of the individual mandate, in response to an executive order from President Donald Trump.[449]

Aetna CEO Mark Bertolini stated that ACA was in a “death spiral” of escalating premiums and shrinking, skewed enrollment.[450] However, a U.S. judge found that the Aetna CEO misrepresented why his company was leaving the exchanges; an important part of the reason was the Justice Department’s opposition to the intended merger between Aetna and Humana. Aetna announced that it would exit the exchange market in all remaining states.[451] It stated that its losses had grown from $100M in 2014 to $450M in 2016.[452]Wellmark withdrew from Iowa in April.[453] As of May, no insurer had indicated its intention to offer ACA insurance in Nebraska.[451] Also in May Blue Cross and Blue Shield of Kansas City announced it would withdraw from Missouri and Kansas’s individual markets in 2018, potentially leaving nearly 19,000 residents in Western Missouri without a coverage option.[454] Anthem announced plans to withdraw from Ohio[455] and later Wisconsin[456] and Indiana,[457] describing the market as “volatile” and referring to the difficulty in pricing its plans “due to the shrinking individual market as well as continual changes in federal operations, rules and guidance.”[455]

The CBO reported in March 2017 that the healthcare exchanges were expected to be stable; i.e., they were not in a “death spiral.”[458] In June, Centene announced that it intended to initiate coverage in Nevada, Kanasa and Missouri and expand coverage in Ohio and Florida.[459]

Molina Healthcare, a major Medicaid provider, said that it was considering exiting some markets in 2018, citing “too many unknowns with the marketplace program.” Molina lost $110 million in 2016 due to having to contribute $325 million more than expected to the ACA “risk transfer” fund that compensated insurers with unprofitable risk pools. These pools were established to help prevent insurers from artificially selecting lower-risk pools.[460]

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President Donald Trump has scrapped the tax plan he campaigned on and is going back to the drawing board in a search for Republican consensus behind legislation to overhaul the U.S. tax system.

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Some view the search for new options as a result of Trump’s refusal to set clear parameters for his plan and his exceedingly challenging endgame: reducing tax rates enough to spur faster growth without blowing up the budget deficit.

Administration officials say it’s now unlikely that a tax overhaul will meet the August deadline set by Treasury Secretary Steve Mnuchin.

Off plan: Donald Trump is abandoning the tax overhaul he campaigned on

Tough deadline: Steven Mnuchin, the Treasury Secretary who was at the table when Trump was briefed on the Syria missile strikes, had set an the August deadline for tax reform

But the ambitious pace to figure out a plan reflects Trump’s haste to move quickly past a bruising failure to broker a compromise within his own party on how to replace the health insurance law enacted under President Barack Obama.

The White House is trying to learn the lessons from health care. Rather than accepting a bill written by the lawmakers, White House officials are taking a more active role.

Administration officials have signaled that they want to pass tax legislation with only Republican votes, yet they’ve also held listening sessions with House Democrats.

White House aides say the goal is to cut tax rates sharply enough to improve the economic picture in depressed rural and industrial pockets of the country where many Trump voters live.

But the administration so far has swatted down alternative ways for raising revenues, such as a carbon tax, to offset lower rates.

Trump, who brands himself as a deal-maker, has not said which trade-offs he might accept and he has remained noncommittal on the leading blueprint, from Rep. Kevin Brady, chairman of the Ways and Means Committee.

Brady, a Republican from Texas, has proposed a border adjustment system, which would eliminate corporate deductions on imports, to raise $1 trillion over 10 years that could fund lower corporate tax rates.

But that possibility has rankled retailers who say it would lead to higher prices and threaten millions of jobs, while some lawmakers have worried that the system would violate World Trade Organization rules.

Brady has said he intends to amend the blueprint but has not spelled out how he would do so.

Other options are being shopped on Capitol Hill.

One circulating this past week would change the House Republican plan to eliminate much of the payroll tax and cut corporate tax rates. This would require a new dedicated funding source for Social Security.

The change, proposed by a GOP lobbyist with close ties to the Trump administration, would transform Brady’s plan on imports into something closer to a value-added tax by also eliminating the deduction of labor expenses.

This would bring it in line with WTO rules and generate an additional $12 trillion over 10 years, according to budget estimates.

Those additional revenues could then enable the end of the 12.4 percent payroll tax, split evenly between employers and employees, that funds Social Security, while keeping the health insurance payroll tax in place.

This approach would give a worker earning $60,000 a year an additional $3,720 in take-home pay, a possible win that lawmakers could highlight back in their districts even though it would involve changing the funding mechanism for Social Security, according to the lobbyist, who asked for anonymity to discuss the proposal without disrupting early negotiations.

Although some billed this as a bipartisan solution, and President Barack Obama did temporarily cut the payroll tax after the Great Recession, others note it probably would run into firm opposition from Democrats who are loathe to be seen as undermining Social Security.

The White House would not comment on the plan, but said a value-added tax based on consumption is not under consideration ‘as of now,’ according to a White House statement.

The lack of detail about how to significantly rewrite tax laws for the first time in 30 years may provide Trump some time to build consensus among Republicans. But without Trump laying down his hand, lawmakers appear reluctant to back a plan that will likely stir controversy.

How will markets react? Stocks rallied after the election on the promise of lower taxes and fewer regulations, but the Dow has dipped 1.2 percent over the past month

Stock markets take a hit after Trump’s healthcare defeat

‘Because there are trade-offs, congressmen need cover from the president to withstand the lobbyists and constituents who are going to complain,’ said Bill Gale, an economist at the Brookings Institution who worked at the White House Council of Economic Advisers during President George H.W. Bush’s administration.

The Trump administration appears to have shut out the economists who helped assemble one of his campaign’s tax overhaul plans, which independent analyses show would have increased the budget deficit.

‘It’s a little frustrating that they feel they have to write a new tax plan when they have a tax plan,’ said Steven Moore, an economist at the conservative Heritage Foundation who helped formulate tax policy for the Trump campaign.

Rob Portman, the Republican senator from Ohio, a member of the Senate Finance Committee, said that all of the trial balloons surfacing in public don’t represent the work that’s being done behind the scenes.

‘It’s not really what’s going on,’ Portman said. ‘What’s going on is they’re working with on various ideas.’

Investors are beginning to show some doubts that Trump can deliver. Stocks rallied after his election on the promise of lower taxes and fewer regulations, but the Dow Jones Industrial Average has dipped 1.2 percent over the past month as the path for health care and tax revisions has become muddied.

‘The White House is going to need its own clear direction, or it’s going to need to defer to Congress, but saying that your plan is forthcoming and then not producing a plan kind of puts everything in stasis,’ said Alan Cole, an economist at the conservative Tax Foundation.

Trump isn’t always right when he makes off-the-cuff remarks such as that, but this time he was. The proposed border adjustment tax is so complicated that even its advocates can’t agree on how its disruptive effects on the U.S. economy will play out, and there’s nothing to love about that. The BAT is a bad idea, and it should be scrapped. And while taking it off the table will bring more red ink to the federal budget, there are better ways to stanch the bleeding than subjecting the economy to the trauma of a BAT.

Despite protestations to the contrary, the border adjustment levy is a tax hike embedded in the program of tax reductions that House Republicans put forward last June under the rubric of “A Better Way.” It’s there, presumably, to help offset the effect of the administration’s planned cuts, since the Republicans’ stated aim is to keep those cuts revenue-neutral. Barron’s fully supports the goal of not adding to deficits that, before too long, will be running above $1 trillion a year, given repeated warnings from the nonpartisan Congressional Budget Office about the risk of a financial crisis, due to exploding debt.

The attraction of a BAT is that it could generate an estimated $100 billion a year in revenue. There may be reasons to challenge that estimate, but we’ll accept it for now. There are, however, better ways to slash the fiscal deficit by $100 billion a year than the Better Way plan, and most fall under the heading of spending cuts.

President Trump has spoken about “waste, fraud, and abuse” in “every agency” of the federal government. Indeed, he promised that “we will cut so much, your head will spin.” He should therefore find plenty to love in our proposed reductions in spending. Just for starters, if all corporate welfare were cut from the budget, as much as $100 billion a year could be saved, about matching the total expected from the BAT.

The president also favors slashing the top rate on corporate income to 15% from 35%. Barron’s has proposed a more modest cut, to 22% (“Cut the Top U.S. Corporate Tax Rate to 22%,” Nov. 26, 2016). The Republican package calls for a reduction to 20%, which is close enough to our original proposal and which we believe should boost revenue rather than shrink it.

A list of potential cuts and revenue enhancements, totaling $200 billion, is in the table at the bottom of this page.

THE BETTER WAY PLAN, as noted, would reduce the top federal tax rate on corporate profits to 20% from 35%—which is all to the good. The proposed tax cut would not only be revenue-neutral; it would probably be revenue-enhancing.

In a study released this month by the London-based Centre for Policy Studies, analyst Daniel Mahoney traces the effect on revenue from Britain’s cuts in the corporate tax rate over a 34-year period. According to his calculations, the take from the corporate tax has added three-tenths of a percentage point annually to gross domestic product since rates were slashed.

Similarly, last year, in calling for a maximum U.S. rate of 22%, we traced the significant decline in the average top rate on corporate income for 19 countries in the Organization for Economic Cooperation and Development, which includes the U.S. and the United Kingdom. Over 33 years, their average tax take as a share of GDP rose six-tenths of a percentage point.

While that might not sound like much, every tenth of a percentage point of U.S. nominal GDP is worth $18.9 billion. So if revenue from the corporate tax rises by, say, three-tenths of a percentage point, to 2.5%—a conservative guess—that increase would translate into a bonus of nearly $57 billion a year in revenue. That alone gets us more than halfway to the $100 billion value of a BAT.

The idea of a revenue-enhancing cut in the corporate income tax was put forward in 1978, when economist Arthur Laffer was first cited as arguing that some rate decreases could generate enough added economic growth that the government wouldn’t lose revenue over the long run—and might, in fact, even gain revenue. Laffer also noted that most tax hikes generate less revenue than a conventional “static” analysis indicates, and that most tax cuts lose less.

Laffer’s “dynamic” analysis covered all of the behavioral changes likely to result from a cut. To begin with, if the tax collector claims a lower share of income, there is an incentive to produce more income. Second, a lower rate means there’s less incentive to spend time and effort avoiding the tax.

Corporations don’t pay taxes; only people do. And there is a tendency to forget that if a corporation nets more profits as a result of a lower tax, those funds will soon take the form of salaries, dividends, and capital gains, and will be taxed in those forms.

The second factor, less tax avoidance, applies with special force to a rollback of corporate taxes. As we noted last year, bringing down the top rate to 22% from 35% would dramatically reduce corporate flight to low-tax jurisdictions in the rest of the world.

More From Barron’s

Following the publication of our article, the CBO released a study confirming that U.S corporate tax rates are among the highest in the world. Among the Group of 20 countries—including Japan, China, Russia, Germany, France, Canada, and the U.K.—the U.S. is No. 1, 3, and 4, respectively, in “top statutory corporate tax rate,” “average corporate tax rate,” and “effective corporate tax rate.” The Better Way plan would narrow this gap significantly and make the U.S. more competitive.

But when it comes to the Better Way plan for cutting tax rates on personal income, Barron’s believes that there would be a loss of revenue even after taking into account behavioral changes. The revenue reduction from the proposed personal income-tax cuts has been estimated, on a static basis, at an average of $98 billion a year. We can assume that dynamic losses would run 10% less, or $88 billion, mainly because lower taxes are likely to encourage people to work.

Still, $88 billion a year is a huge loss of revenue. Barron’s proposes that the Better Way plan consider splitting the difference and going halfway on the tax cut, thus saving $44 billion.

THE REVENUE-ENHANCING corporate tax cut would include a special kicker in the form of the border adjustment tax. The BAT would deny corporations the ability to deduct the cost of imports from their taxable income, while all income earned from exports would be exempt from the 20% levy.

This means that companies selling imported goods in the domestic market would be taxed on the sale’s full proceeds—not just on the profit earned—which could more than offset the gains from the corporate tax reduction. At the same time, as noted, there would be no tax on the sale of exports.

The GOP’s Big Three Key players in the border adjustment tax debate: Senate Majority Leader Mitch McConnell, above, and House Speaker Paul Ryan and President Donald Trump, below. McConnell has said that he hasn’t made up his mind about the levy. Alex Wong/Getty Images

The BAT would bring uncertainty and disruption to the U.S. economy, making it hard to predict whether it really would raise $100 billion annually in revenue. The basic idea is that, because the U.S. imports more than it exports, the export exemption would be more than offset by hitting imports hard. Regardless of how it shakes out, the value of the transactions affected by the BAT is huge.

The U.S. trade deficit—the difference between exports and imports—ran at just 3.4% of real GDP in 2016, much lower than the 5.5% peak of 2005. But the actual gross flows of exports and imports are much larger than the difference between the two flows. Exports last year were valued at $2.2 trillion, or 12.8% of real GDP, and imports at $2.7 trillion, or 16.2% (see chart). Given those magnitudes, the tax plan is likely to require massive readjustments throughout the economy.

That’s why major importers, like Wal-Mart Stores, are objecting—and why exporters are clearly pleased. As you might expect, then, the BAT is pitting exporters against importers, creating needless discord at a time when the country is surely suffering from more discord than it can handle.

THE POSITION PAPER for the Better Way asserts that by “exempting exports and taxing imports,” the BAT does “not” consist of the “addition of a new tax.” But of course, the BAT’s designers know that imports normally exceed exports by about $500 billion a year. Apply a back-of-the-envelope 20% to that $500 billion, and you get the hoped-for $100 billion in revenue. So the maneuver of “exempting exports and taxing imports” certainly looks and sounds like a new tax.

The Better Way statement also argues that there is an imbalance in the tax treatment of imports and exports that the BAT must remedy. “In the absence of border adjustments,” it states, “exports from the United States implicitly bear the cost of the U.S. income tax, while imports do not bear any federal income tax cost. This amounts to a self-imposed unilateral penalty on American exports and a self-imposed unilateral subsidy for U.S. imports.”

Ryan strongly supports the tax. Chip Somodevilla/Getty Images

But all other countries impose this “implicit cost” on exports through their own corporate income tax. And since the Better Way would slash America’s top rate to 20%, this implicit cost would finally become competitive with that of other nations.

Some supporters of the BAT like it precisely because it would help exports and penalize imports. The mercantilist view of economics implicit in that aim was discredited in Adam Smith’s 1776 treatise, The Wealth of Nations. And apart from the massive dislocations that will occur if imports shrink, this calls into question whether the projected $100 billion a year in revenue is realistic. As Alan Greenspan once wisely said, “Whatever you tax, you get less of.”

Then again, whether we really will get fewer imports depends a lot on the exchange value of the dollar. Other supporters of the BAT predict that the dollar will respond by appreciating against other currencies, conforming to the dictates of textbook fundamentals. If the dollar appreciates enough, the advantage to exporters and disadvantage to importers will be nullified. Without getting into the technicalities of how all this would work, we concede that it is all quite possible.

But as currency analysts and traders can tell you, exchange rates are subject to all kinds of forces and can spend long periods flouting textbook fundamentals. So whether the dollar will really strengthen in response to the BAT is anyone’s guess. But even if it does, a much stronger greenback would bring other disruptions. American investors with holdings denominated in foreign currencies would take a huge hit. And America’s tourist industries, which are already hurting from what the Los Angeles Times has called a “Trump slump,” would be hurt even more, as the cost of traveling to the States jumps.

There are other questions. Would the World Trade Organization challenge the BAT? Might our trading partners respond in ways that would be unfavorable to us? The border adjustment tax is an experiment in Rube Goldberg economics that the U.S. can do without.

SINCE REVENUE NEUTRALITY is the goal of the Better Way package, what about making up for the $100 billion a year in revenue that the border adjustment tax is supposed to generate?

Whether this tax really will raise as much as $100 billion depends on how imports and exports respond, which is hard to predict. Also, the reduction in the corporate income tax would probably be revenue-enhancing and could generate more than $50 billion in annual revenue.

The president has declared that “anytime I hear border adjustment, I don’t love it” and has voiced concern that it’s overly complicated. Michael Reynolds/Getty Images

We note that the full title of the House Republican plan is “A Better Way: Our Vision for a Confident America,” which leaves room for a vision that includes cost-cutting, along with tax-cutting.

That discussion revealed much low-hanging fruit. For example, the Medicare system is rife with “improper payments,” which Medicare itself estimates at 11% of its spending in 2016. That’s probably a low estimate, because those who get improperly paid tend to keep these payments hidden. Barron’s calculated that if the improper-payment rate could be halved, it would save more than $400 billion over 10 years.

That would contribute $40 billion a year to the $100 billion shortfall from forgoing the BAT. To that we add $65 billion, and perhaps as much as $100 billion, by eliminating corporate welfare.

The Better Way statement properly criticizes the tax code for being “littered with hundreds of preferences and subsidies that pick winners and losers” and “direct resources to politically favored interests.” Spending on corporate welfare is another form of subsidy that picks winners and losers and directs funds to politically favored interests.

IN A 2012 PAPER, “Corporate Welfare in the Federal Budget,” the Cato Institute identified nearly $100 billion worth of yearly spending on corporate handouts, broadly defined, that could be ended. At Barron’s request, Cato senior fellow Chris Edwards updated the scoring on just 10 of the institute’s 40 categories of corporate welfare and came up with $66 billion in potential cuts.

High on Edwards’ list: farm subsidy programs, which redistribute taxpayer money to relatively rich agribusinesses and landowners. That the farm industry receives subsidies makes about as much sense as channeling funds to the restaurant industry, which could well be riskier than farming, based on its high failure rate. This form of corporate welfare goes back to the Great Depression of the 1930s. But whatever argument might have been made for it then hardly applies today, with the yearly tab currently at $25 billion.

Also on the corporate welfare list: pork-barrel handouts administered by the Department of Housing and Urban Development, totaling $13 billion, which go under the heading of “community development,” and which distribute funds to such recipients as museums, recreational facilities, and parking lots. Whatever one may think about the worthiness of these projects, they are better left to states and localities.

Another $10 billion could be saved by abolishing the Universal Service Fund, through which the Federal Communications Commission subsidizes telecommunications companies, among others. A creation of the Telecommunications Act of 1996, this attempt to pick winners and losers is more unnecessary than ever in this dynamic and competitive industry.

PRESIDENT TRUMP PROMISED to “drain the swamp” of Washington’s special interests. One route toward that admirable goal would be to cut corporate welfare. Trump should repeat his objections to a border adjustment tax that would favor the interests of some businesses over others. He can help make U.S. corporations great again by weaning them off subsidies and reducing their tax burdens.

And there are many other provisions that would reduce penalties on work, saving, investment, and entrepreneurship. No, it’s not quite a flat tax, which is the gold standard of tax reform, but it is a very pro-growth initiative worthy of praise.

That being said, there is a feature of the plan that merits closer inspection. The plan would radically change the structure of business taxation by imposing a 20 percent tax on all imports and providing a special exemption for all export-related income. This approach, known as “border adjustability,” is part of the plan to create a “destination-based cash flow tax” (DBCFT).

When I spoke about the Better Way plan at the Heritage Foundation last month, I highlighted the good features of the plan in the first few minutes of my brief remarks, but raised my concerns about the DBCFT in my final few minutes.

Allow me to elaborate on those comments with five specific worries about the proposal.

Concern #1: Is the DBCFT protectionist?

It certainly sounds protectionist. Here’s how the Financial Timesdescribed the plan.

The border tax adjustment would work by denying US companies their current ability to deduct import costs from their taxable income, meaning companies selling imported products would effectively be taxed on the full value of the sale rather than just the profit. Export revenues, meanwhile, would be excluded from company tax bases, giving net exporters the equivalent of a subsidy that would make them big beneficiaries of the change.

…the DBCFT would impose a flat 20 percent tax only on earnings from sales of output consumed within the United States… It gets complicated, but the upshot is that the cost of imported supplies would no longer be deductible from taxable income, while all revenue from exports would be. This would be a huge incentive to import less and export more, significant change indeed for an economy deeply dependent on global supply chains.

That certainly sounds protectionist as well. A tax on imports and a special exemption for exports.

But proponents say there’s no protectionism because the tax is neutral if the benchmark is where products are consumed rather than where income is earned. Moreover, they claim exchange rates will adjust to offset the impact of the tax changes. Here’s how Lane explains the issue.

…the greenback would have to rise 25 percent to offset what would be a new 20 percent tax on imported inputs — propelling the U.S. currency to its highest level on record. The international consequences of that are unforeseeable, but unlikely to be totally benign for everyone. Bear in mind that many other countries — China comes to mind — can and will manipulate exchange rates to protect their own short-term interests.

For what it’s worth, I accept the argument that the dollar will rise in value, thus blunting the protectionist impact of border adjustability. It would remain to be seen, though, how quickly or how completely the value of the dollar would change.

Concern #2: Is the DBCFT compliant with WTO obligations?

The United States is part of the World Trade Organization (WTO) and we have ratified various agreements designed to liberalize world trade. This is great for the global economy, but it might not be good news for the Better Way plan because WTO rules only allow border adjustability for indirect taxes like a credit-invoice value-added tax. The DBCFT, by contrast, is a version of a corporate income tax, which is a direct tax.

Trading partners could also challenge the GOP plan as a discriminatory subsidy at the World Trade Organization. That’s because it includes a deduction for wages paid by U.S.-located firms, importers and exporters alike — a break that would obviously not be available to competitors abroad.

Advocates argue that the DBCFT is a consumption-base tax, like a VAT. And since credit-invoice VATs are border adjustable, they assert their plan also should get the same treatment. But the WTO rules say that only “indirect” taxes are eligible for border adjustability. The New York Timesreports that the WTO therefore would almost surely reject the plan.

Michael Graetz, a tax expert at the Columbia Law School, said he doubted that argument would prevail in Geneva. “W.T.O. lawyers do not take the view that things that look the same economically are acceptable,” Mr. Graetz said.

A story in the Wall Street Journal considers the potential for an adverse ruling from the World Trade Organization.

Even though it’s economically similar to, and probably better than, the value-added taxes (VATs) many other countries use, it may be illegal under World Trade Organization rules. An international clash over taxes is something the world can ill afford when protectionist sentiment is already running high. …The controversy is over whether border adjustability discriminates against trade partners. …the WTO operates not according to economics but trade treaties, which generally treat tax exemptions on exports as illegal unless they are consumption taxes, such as the VAT. …the U.S. has lost similar disputes before. In 1971 it introduced a tax break for exporters that, despite several revamps, the WTO ruled illegal in 2002.

Republicans are going to have to figure out how to make such a huge de facto shift in the U.S. tax treatment of imports compliant with international trade law. In its current iteration, the proposal would allow corporations to deduct the costs of wages paid within this country — a nice reward for hiring Americans and paying them well, which for complex reasons could be construed as a discriminatory subsidy under existing World Trade Organization doctrine.

Concern #3: Is the DBCFT a stepping stone to a VAT?

If the plan is adopted, it will be challenged. And if it is challenged, it presumably will be rejected by the WTO. At that point, we would be in uncharted territory.

Would that force the folks in Washington to entirely rewrite the tax system? Would they be more surgical and just repeal border adjustability? Would they ignore the WTO, which would give other nations the right to impose tariffs on American exports?

One worrisome option is that they might simply turn the DBCFT into a subtraction-method value-added tax (VAT) by tweaking the law so that employers no longer could deduct expenses for labor compensation. This change would be seen as more likely to get approval from the WTO since credit-invoice VATs are border adjustable.

This possibility is already being discussed. The Wall Street Journal story about the WTO issue points out that there is a relatively simple way of making the DBCFT fit within America’s trade obligations, and that’s to turn it into a value-added tax.

One way to avoid such a confrontation would be to revise the cash flow tax to make it a de facto VAT.

One tax initiative that should be strangled before it sees the light of day is to give a tax rebate to exporters and to impose taxes on imports. …It’s a bad idea. Why do we want to make American consumers pay more for products while subsidizing foreign buyers? It also could put us on the slippery slope to our own VAT.

And that’s not a slope we want to be on. Unless the income tax is fully repealed (sadly not an option), a VAT would be a recipe for turning America into a European-style welfare state.

Alan Auerbach, an academic from California who previously was an adviser for John Kerry and also worked at the Joint Committee on Taxation when Democrats controlled Capitol Hill, is the main advocate of a DBCFT (the New York Timeswrote that he is the “principal intellectual champion” of the idea).

He wrote a paper several years ago for the Center for American Progress, a hard-left group closely associated with Hillary Clinton. Auerbach explicitly argued that this new tax scheme is good because politicians no longer would feel any pressure to lower tax rates.

This…alternative treatment of international transactions that would relieve the international pressure to reduce rates while attracting foreign business activity to the United States. It addresses concerns about the effect of rising international competition for multinational business operations on the sustainability of the current corporate tax system. With rising international capital flows, multinational corporations, and cross-border investment, countries’ tax rates and tax structures are of increasing importance. Indeed, part of the explanation for declining corporate tax rates abroad is competition among countries for business activity. …my proposed reforms…builds on the [Obama] Administration’s approach…and alleviates the pressure to reduce the corporate tax rate.

This is very troubling. Tax competition is a very valuable liberalizing force in the world economy. It partially offsets the public choice pressures on politicians to over-tax and over-spend. If governments no longer had to worry that taxable activity could escape across national borders, they would boost tax rates and engage in more class warfare.

Concern #5: Does the DBCFT create needless conflict and division among supporters of tax reform?

As I pointed out in my remarks at the Heritage Foundation, there’s normally near-unanimous support from the business community for pro-growth tax reforms.

That’s not the case with the DBCFT.

The Washington Examiner reports on the divisions in the business community.

Major retailers are skeptical of the House Republican plan to revamp the tax code, fearing that the GOP call to border-adjust corporate taxes could harm them even if they win a significant cut to their tax rate. As a result, retailers, oil refiners and other industries that import goods to sell in the U.S. could provide a major obstacle to the Republican effort to reform taxes. …The effect of the border adjustment, retailers fear, would be that the goods they import to sell to consumers would face a 20 percent mark-up, one that would force retailers like Walmart, the Home Depot and Sears…to raise prices and lose customers.

…retailers are nervous. Very nervous. …About 95 percent of clothing and shoes sold in the U.S. are manufactured overseas, which means imports make up a vast majority of many U.S. retailers’ merchandise. …If the GOP plan were adopted as it’s currently laid out, Gap pays 20 percent corporate tax on the $5 profit from the sweater, or $1. Plus, 20 percent tax on the $80 cost it paid for that sweater from the overseas supplier, or $16. That means the tax goes from $1.75 to $17 for that sweater, more than three times the profit on that sweater. Talk about a hit to margins. …Retailers certainly aren’t taking a lot of comfort in the economic theory of dollar appreciation. …the tax reform plan will dilute specialty retailers’ earnings by an average of 132 percent. …Athletic manufacturers could take a 40 percent earnings hit… Gap, Carter’s , Urban Outfitters , Fossil and Under Armour are most at risk under the plan.

And here’s another article from the Washington Examiner that explains why folks in the energy industry are concerned.

…the border adjustment would raise costs for refiners that import oil. In turn, that could raise prices for consumers. The border adjustment would amount to a $10-a-barrel tax on imported crude oil, raising costs for drivers buying gasoline by up to 25 cents a gallon, the energy analyst group PIRA Energy Group warned this week. The report warned of a “potential huge impact across the petroleum industry,” even while noting that the tax reform plan faces many obstacles to passage.

Concern #6: What happens when other nations adopt their versions of a DBCFT?

Advocates of the DBCFT plausibly argue that if the WTO somehow approves their plan, then other nations will almost certainly copy the new American system.

But is also has negative implications for the fight to protect America from a VAT. The main selling point for advocates of the DBCFT is that we need a border-adjustable tax to offset the supposed advantage that other nations have because of border-adjustable VATs (both Paul Krugman and I agree that this is nonsense, but it still manages to be persuasive for some people).

So what happens when other nations turn their corporate income taxes into DBCFTs, which presumably will happen? We’re than back where we started and misguided people will say we need our own VAT to balance out the VATs in other nations.

The bottom line is that a DBCFT is not the answer to America’s wretched business tax system. There are simply too many risks associated with this proposal. I’ll elaborate tomorrow in Part II and also explain some good ways of pursuing tax reform without a DBCFT.

After months of insisting that a trillion-dollar Border Adjustment Tax (BAT) on American consumers is the best and only way to achieve pro-growth tax reform without adding to the deficit, Ways and Means Chairman Kevin Brady acknowledged that importers fearful of the new tax have “valid concerns.”

The proposed BAT from House Republicans would mean a new 20 percent tax on everything imported into the U.S., raising up to $1.2 trillion of new government revenue in the form of higher prices, shouldered by consumers. In effect, the regressive tax could undercut positive economic outcomes from lower rates and a simplified tax code through tax reform.

According to Chairman Brady, House Republicans need to “make sure that we allay the valid concerns of those that are importing today,” CNBC reports.

Freedom Partners Vice President of Policy Nathan Nascimento issued the following statement:

“Some of the ‘valid concerns’ that Chairman Brady acknowledges include a devastating new trillion-dollar tax hike, higher costs on everyday goods, fewer jobs, and less economic opportunity. We hope to work with the administration and Congress to get pro-growth tax reform done, but a 20 percent tax hike on all imports would only undermine the point of tax reform – which is to provide much-needed relief for taxpayers and the economy. A massive tax hike on all imports is bad policy, and Americans deserve a better plan that can unite lawmakers in both the House and Senate behind comprehensive tax reform.”

Americans for Prosperity has already identified more than $2 trillion in wasteful spending, unnecessary programs, and corporate welfare that ought to be eliminated before any new tax on U.S. consumers. Freedom Partners and its coalition allies support the efforts of Congress and the administration to bring comprehensive tax reform to reality in a way that protects all Americans from a massive tax hike.

U.S. Businesses Facing Massive Tax Increases Under A Border-Adjusted Tax System Have “Valid Concerns”

Wall Street Journal: “Some Retailers And Other Big Importers … Warn Of Tax Bills That Would Exceed Profits, Forcing Them To Pass Costs To Consumers. ”Cody Lusk, president of the American International Automobile Dealers Association, says his members are shocked that a Republican Congress is proposing a 20% tax on imports.” (Richard Rubin, “GOP Plan To Overhaul Tax Code Gets Held Up At The Border,” Wall Street Journal, 2/7/17)

LUSK: “We view this as a very, very serious potential blow to the auto sector and the economy.” (Richard Rubin, “GOP Plan To Overhaul Tax Code Gets Held Up At The Border,” Wall Street Journal, 2/7/17)

Financial Times: Border Tax Threatens To Devastate Importers Through Soaring Tax Bills. “Yet for Mr. Woldenberg the hope has turned to horror. Republicans are still promising the most sweeping changes since the Reagan reforms of 1986. But the only firm proposal on the table — from the House of Representatives — threatens to devastate his 150-person business because it includes a 20 per cent tax on imports … The problem for Mr. Woldenberg is that his goods come from China — 98 per cent of the products he sells in the US are imported. US factories could not produce them with the same low costs and specialized skills, he says. So he would have no choice but to pay the import levy. He estimates it would send his tax bill soaring to 165 per cent of earnings.” (Barney Jopson, Sam Fleming & Shawn Donnan, “Trump And The Tax Plan Threatening To Split Corporate America,” Financial Times, 2/13/17)

RICK WOLDENBERG: “To preserve cash flow I [would have to] raise my prices by a third, expect volume to go down by 40 per cent, and fire one out of five people.” (Barney Jopson, Sam Fleming & Shawn Donnan, “Trump And The Tax Plan Threatening To Split Corporate America,” Financial Times, 2/13/17)

RBC Capital Markets: Major Retailers Would Face Tax Bills That Exceed Their Operating Profits. “Major retailers like Wal-Mart, Best Buy, Costco and Dollar Tree would face tax bills that exceed their operating profits under House Republicans’ plans to create a ‘border adjustable’ business tax, RBC Capital Markets said. The investment bank sided with retailers in a debate over the proposal, saying in a research note it would have a ‘seriously adverse’ impact on them. ‘If the US moves to a border-adjusted tax system, most of our retailers would be forced to raise prices (and revenues) or meaningfully change their import/domestic sourcing mix, or their earnings would be materially reduced,’ it said.” (Brian Faler, “RBC Capital Markets: GOP Border-Adjustment Plan Bad For Retailers,” POLITICO Pro, 12/12/16)

POLITICO: “Retailers Fear Massive Tax Increases Under House Republican Tax Plan” “Many retailers fear that, even with Republicans promising to slash the corporate tax rate, they will still face big tax increases that in some cases will exceed their profits. On high alert over the proposal, retailers have begun a big lobbying campaign on the Hill, warning lawmakers and their aides that any tax hikes will get passed on to their constituents in the form of higher prices.” (Brian Faler, “Retailers Fear Massive Tax Increases Under House Republican Tax Plan,” POLITICO, 11/23/16)

The National Retail Federation Warns That A Border Tax Could Shut Businesses Down Completely. “‘Our members have told us that the import tax could be as high as five times their profits,’ said David French, chief lobbyist for the National Retail Federation. ‘I don’t know how viable some retailers would be in the face of this import tax.’” (Brian Faler, “Retailers Fear Massive Tax Increases Under House Republican Tax Plan,” POLITICO, 11/23/16)

POLITICO Pro: “Some Of The Biggest Losers Would Be Retailers Like Walmart, Best Buy And Home Depot That Import Massive Amounts Of Goods And Materials On Which They Would Suddenly Have To Pay Taxes.” “The border adjustment plan would affect individual companies differently, depending in part on how much they import and export. Some of the biggest losers would be retailers like Walmart, Best Buy and Home Depot that import massive amounts of goods and materials on which they would suddenly have to pay taxes.” (Brian Faler, “Some Companies May Never Pay Taxes Under Border-Adjustment Tax Plan,” POLITICO Pro, 1/9/17)

Axios: Cowen Research Released A Study Highlighting Some Of The Big Name Companies That Will Be Hurt By The Border Adjustments High Tax Hikes. “Cowen Research published a report Thursday that estimates the effect of the reform plan, and other planned measures, like eliminating the deductibility of interest and a headline corporate tax cut, on different industries and companies. Here are some of the big-name firms Cowen says will be hurt by reform: 1. Apple: The world’s largest company would see its tax bill jump because it won’t be able to deduct the expense of assembly abroad. 2. Constellation Brands: The largest beer importer in America will not be able to expense the cost of goods it brings across the border, like its Corona brand. 3. Gap: Between 50% and 80% of the retailer’s cost of the goods its sells comes from abroad. Walmart: 4. Walmart’s low margins means that it may not be able to survive a tax hike on imported goods without raising prices. 5. Target: Will suffer from the same conundrum as Walmart, but will be worse off since less of its revenue comes from domestically-sourced groceries. J.C. Penney: The department store has high debt loads, and interest on debt will not be deductible under the Republican plan. (Christopher Matthews, “These Companies Will Be Hit Hardest By GOP Tax Reform,” Axios, 1/27/17)

Border Adjustment Tax Would Result In Higher Costs For Hard-Working Families

Christian Science Monitor: Border Tax Could Raise Car Prices By Thousands Of Dollars. “Michigan-based Baum & Associates says that a border tax–one that applies not only to vehicles imported from factories abroad but also to foreign-made vehicle parts–could increase sticker prices by as much as $17,000 … Most increases would be smaller, but still very substantial. Volvo, for example, would need to up its prices by more than $7,500 to accommodate a border tax. Volkswagen wouldn’t be far behind, with increases of around $6,800. Even Detroit brands would see price upticks: Ford’s would climb $285, and General Motors’ would rise by nearly $1,000. Fiat Chrysler would have to boost prices by closer to $2,000.” (Richard Read, “How Trump’s Border Tax Could Raise Car Prices By Thousands Of Dollars,” Christian Science Monitor, 2/8/17)

Auto Sales Would Plummet Under A Border Adjustment Tax. “A report from UBS Securities says that the higher car prices would slash U.S. auto sales by about 2 million vehicles per year. That would more than erase the increased capacity and almost certainly result in layoffs.” (Richard Read, “How Trump’s Border Tax Could Raise Car Prices By Thousands Of Dollars,” Christian Science Monitor, 2/8/17)

More Than A Hundred American Businesses Are Opposing The Republican Border Tax: “Don’t Make Hard-Working Families Pay More On Essential Products.” “Nike, Rite Aid, The Gap, Best Buy and Abercrombie & Fitch have joined a new advocacy group aimed at killing House Republicans’ plans to create a border adjustable business tax. They are some of the more than 100 companies and trade associations behind Americans for Affordable Products, an organization launched today that is pushing lawmakers to dump a plan to begin taxing imports as part of a broader tax-code rewrite. The groups, which rely on imports, fear the House Republican plan will mean huge tax increase even as Republicans promise to simultaneously slash the corporate tax rate … Other well-known companies joining the effort include Target, Walmart, QVC, Petco, AutoZone, Macy’s and Levi Strauss.” (Brian Faler, “Border Adjustment Tax Opponents Launch New Group Targeting GOP Proposal,” Politico, 2/01/17)

“A Sweeping Tax Reform Proposal Meant To Boost U.S. Manufacturing Faces Mounting Pressure From Industries That Rely Heavily On Imported Goods …” “A sweeping tax reform proposal meant to boost U.S. manufacturing faces mounting pressure from industries that rely heavily on imported goods as President-elect Donald Trump and congressional Republicans work to finalize new tax legislation. As Republican members of the House of Representatives tax committee prepared to discuss tax reform this week, the panel received a letter from 81 industry groups rejecting the proposal known as ‘border adjustability.’ A lynchpin of the House Republican ‘Better Way’ agenda and viewed favorably by Trump’s team, the policy would help manufacturers by exempting export revenues from corporate taxes. But it would tax imports, hitting import-dependent industries.” (David Morgan, “U.S. Tax Reform Proposal On Border Trade Faces Growing Opposition,” Reuters, 12/15/16)

CNBC: Coach CEO Victor Luis Acknowledged That “Any Border Tax Will Lead To Higher Prices For The Consumer.” “If we see this border adjustment in an economy where 70 percent of GDP is driven by consumption that is driven on imports, any border tax will lead to higher prices for the consumer … That’s just a reality that we’ll have to face if it comes to that.” (Rachel Cao, “Coach CEO: Any Border Tax Will Lead To Higher Prices For The Consumer,” CNBC, 1/31/17)

National Retail Federation: The Border Adjustment Tax Could Cost The Average Family $1,700 In Just The First Year. “The imposition of a ‘border adjustment tax,’ a key provision of a pending House tax reform proposal, would end up seriously harming U.S. consumers. NRF analysis indicates that this plan could cost the average family $1,700 in the first year alone if the border adjustment provision is enacted. While economic theory suggests that trade flow of imports and exports would balance out over the long run due to offsetting exchange rate and price adjustments, there is no consensus as to the degree or the timing of these adjustments. In the near term, consumers would be left to pick up the significant tab while hoping that the economic theory proves out.” (Mark Mathews, “Border Adjustment Tax Would Cost American Households Up To $1,700 In First Year Alone,” National Retail Federation, 2/3/17)

NRF: Annual Family’s Savings Could Be Wiped Out By Nearly A Third. “For the average family, 27 percent of their savings (income after taxes and expenditures) could evaporate with the cost increases caused by the border tax.” (Mark Mathews, “Border Adjustment Tax Would Cost American Households Up To $1,700 In First Year Alone,” National Retail Federation, 2/3/17)

“Unmarried adults without children currently have only $443 left over annually after taxes and expenditures. If the border adjustment tax were enacted, they could see an $836 increase in costs — nearly 200 percent higher than their annual savings.”

“One-parent households, which are already in the red, could see an additional $1,000 added to their debt burden as they do what they can to make ends meet. Their apparel and footwear bills would increase by $271”

“The average family (married with children) could see their apparel costs (including shoes) increase by $437 a year.”

“Single people could see their annual gasoline bills rise by $189, a whopping 43 percent of their annual average savings.”

“Married couples with children could see their annual gasoline bill could increase by over $400.”

CNBC: “The Republicans’ Plan To Enact A Border Adjustment Tax Will Leave Consumers Digging Deeper Into Their Pockets,” Increasing The Price Of Everyday Goods Like Clothes And Shoes By 20 Percent. “It will force consumers to pay as much as 20 percent more for the products they need. Gasoline is estimated to go up as much as 35 cents a gallon,’ said ‘Americans for Affordable Products’ advisor Brian Dodge … ‘Common household goods, apparel, things that people count on every day, pajamas, will cost more and really just so a certain, select group of corporations can avoid paying taxes forever. We think that’s bad policy…” (Michelle Fox, “Consumers Could See 20% Price Hike With Border Adjustment Tax, Retail Group Says,” CNBC, 2//17)

Economists And Analysts Weigh-In Against Border Adjustments

Dan Mitchell, Cato Institute: “I’ve Never Understood Why Politicians Think It’s A Good Idea To Have Higher Taxes On What Americans Consume And Lower Taxes On What Foreigners Consume.” (Dan Mitchell, “A Remarkably Good And Reasonably Bold Tax Reform Plan From House Republicans,” International Liberty, 6/25/16)

President Of The New York Fed Bill Dudley: “… There Could Be A Lot Of Unintended Consequences.” “Another prominent critic of a ‘border adjustment tax’ emerged Tuesday: the president of the New York Federal Reserve. Bill Dudley was asked by Macy’s CEO Terry Lundgren at a meeting of the National Retail Federation trade group what he thinks of the idea of a border adjustment tax, which involves taxing imports at 20 percent, while making U.S. exports tax-free. … ‘I think that it will lead to a lot of changes in the value of the dollar, the price of imported goods in the U.S., and I’m not sure that would all happen very smoothly,’ Dudley said. ‘I also think there could be a lot of unintended consequences.’” (Michelle Caruso-Cabrera, “NY Fed’s Dudley Sees ‘A Lot Of Unintended Consequences’ From Border-Tax Plan,” CNBC, 1/17/17)

Stephen Moore, Heritage Foundation: Border Tax Unlikely To Be Enacted. “A Heritage Foundation economist who advised President Trump’s campaign said he doubts a proposal from House Republicans to tax imports and exempt exports will gain traction.” (Naomi Jagoda, “Trump Campaign Adviser: Border Tax Unlikely To Be Enacted,” The Hill, 2/7/17)

Steve Forbes: Border Adjustment Amounts To “Sneaky, Anti-Consumer Tax.” “This levy will cost American consumers at least a trillion dollars over the next ten years … Prices for everyday items, such as socks, shoes and household appliances, will go up. So will tech devices like the iPad, not to mention automobiles and trucks. Gasoline? Millions of Americans will pay an additional 30 cents or more per gallon at the pump. Lower-income and struggling middle-class Americans will get hit the hardest.” (Steve Forbes, “OMG! House Republicans Are Preparing To Hit Consumers With A Horrible New Tax That Will Harm Trump And Hurt The Economy,” Forbes, 1/11/17)

KUDLOW: “That is an exercise in government planning and complexity that I believe is doomed to fail … I think the whole corporate tax reform, which is the most important pro-growth measure, will go down the drain over this … There’s a problem that exists, but this is not the right solution …” (Brian Faler, “Trump Adviser Larry Kudlow Slams Border-Adjustment Tax Plans,” POLITICO Pro, 1/12/17)

Concerns about the”Border Adjustable” Tax Plan from the House GOP, Part II

I wrote yesterday to praise the Better Way tax plan put forth by House Republicans, but I added a very important caveat: The “destination-based” nature of the revised corporate income tax could be a poison pill for reform.

I listed five concerns about a so-called destination-based cash flow tax (DBCFT), most notably my concerns that it would undermine tax competition (folks on the left think it creates a “race to the bottom” when governments have to compete with each other) and also that it could (because of international trade treaties) be an inadvertent stepping stone for a government-expanding value-added tax.

Brian Garst of the Center for Freedom and Prosperity has just authored a new study on the DBCFT. Here’s his summary description of the tax.

The DBCFT would be a new type of corporate income tax that disallows any deductions for imports while also exempting export-related revenue from taxation. This mercantilist system is based on the same “destination” principle as European value-added taxes, which means that it is explicitly designed to preclude tax competition.

Since CF&P was created to protect and promote tax competition, you won’t be surprised to learn that the DBCFT’s anti-tax competition structure is a primary objection to this new tax.

First, the DBCFT is likely to grow government in the long-run due to its weakening of international tax competition and the loss of its disciplinary impact on political behavior. … Tax competition works because assets are mobile. This provides pressure on politicians to keep rates from climbing too high. When the tax base shifts heavily toward immobile economic activity, such competition is dramatically weakened. This is cited as a benefit of the tax by those seeking higher and more progressive rates. …Alan Auerbach, touts that the DBCFT “alleviates the pressure to reduce the corporate tax rate,” and that it would “alter fundamentally the terms of international tax competition.” This raises the obvious question—would those businesses and economists that favor the DBCFT at a 20% rate be so supportive at a higher rate?

Brian also shares my concern that the plan may morph into a VAT if the WTO ultimately decides that is violates trade rules.

Second, the DBCFT almost certainly violates World Trade Organization commitments. …Unfortunately, it is quite possible that lawmakers will try to “fix” the tax by making it into an actual value-added tax rather than something that is merely based on the same anti-tax competition principles as European-style VATs. …the close similarity of the VAT and the DBCFT is worrisome… Before VATs were widely adopted, European nations featured similar levels of government spending as the United States… Feeding at least in part off the easy revenue generate by their VATs, European nations grew much more drastically over the last half century than the United States and now feature higher burdens of government spending. The lack of a VAT-like revenue engine in the U.S. constrained efforts to put the United States on a similar trajectory as European nations.

And if you’re wondering why a VAT would be a bad idea, here’s a chart from Brian’s paper showing how the burden of government spending in Europe increased once that tax was imposed.

In the new report, Brian elaborates on the downsides of a VAT.

If the DBCFT turns into a subtraction-method VAT, its costs would be further hidden from taxpayers. Workers would not easily understand that their employers were paying a big VAT withholding tax (in addition to withholding for income tax). This makes it easier for politicians to raise rates in the future. …Keep in mind that European nations have corporate income tax systems in addition to their onerous VAT regimes.

And he points out that those who support the DBCFT for protectionist reasons will be disappointed at the final outcome.

…if other nations were to follow suit and adopt a destination-based system as proponents suggest, it will mean more taxes on U.S. exports. Due to the resulting decline in competitive downward pressure on tax rates, the long-run result would be higher tax burdens across the board and a worse global economic environment.

Brian concludes with some advice for Republicans.

Lawmakers should always consider what is likely to happen once the other side eventually returns to power, especially when they embark upon politically risky endeavors… In this case, left-leaning politicians would see the DBCFT not as something to be undone, but as a jumping off point for new and higher taxes. A highly probable outcome is that the United States’ corporate tax environment becomes more like that of Europe, consisting of both consumption and income taxes. The long-run consequences will thus be the opposite of what today’s lawmakers hope to achieve. Instead of a less destructive tax code, the eventual result could be bigger government, higher taxes, and slower economic growth.

Amen.

My concern with the DBCFT is partly based on theoretical objections, but what really motivates me is that I don’t want to accidentally or inadvertently help statists expand the size and scope of government. And that will happen if we undermine tax competition and/or set in motion events that could lead to a value-added tax.

Let’s close with three hopefully helpful observations.

Helpful Reminder #1: Congressional supporters want a destination-based system as a “pay for” to help finance pro-growth tax reforms, but they should keep in mind that leftists want a destination-based system for bad reasons.

Based on dozens of conversations, I think it’s fair to say that the supporters of the Better Way plan don’t have strong feelings for destination-based taxation as an economic principle. Instead, they simply chose that approach because it is projected to generate $1.2 trillion of revenue and they want to use that money to “pay for” the good tax cuts in the overall plan.

That’s a legitimate choice. But they also should keep in mind why other people prefer that approach. Folks on the left want a destination-based tax system because they don’t like tax competition. They understand that tax competition restrains the ability of governments to over-tax and over-spend. Governments in Europe chose destination-based value-added taxes to prevent consumers from being able to buy goods and services where VAT rates are lower. In other words, to neuter tax competition. Some state governments with high sales taxes in the United States are pushing a destination-based system for sales taxes because they want to hinder consumers from buying goods and services from states with low (or no) sales taxes. Again, their goal is to cripple tax competition.

Something else to keep in mind is that leftist supporters of the DBCFT also presumably see the plan as being a big step toward achieving a value-added tax, which they support as the most effective way of enabling bigger government in the United States.

Helpful Reminder #2: Choosing the right tax base (i.e., taxing income only one time, otherwise known as a consumption-base system) does not require choosing a destination-based approach.

The proponents of the Better Way plan want a “consumption-base” tax. This is a worthy goal. After all, that principle means a system where economic activity is taxed only one time. But that choice is completely independent of the decision whether the tax system should be “origin-based” or “destination-based.”

The bottom line is that you can have the right tax base with either an origin-based system or a destination-based system.

Helpful Reminder #3: The good reforms of the Better Way plan can be achieved without the downside risks of a destination-based tax system.

The Tax Foundation, even in rare instances when I disagree with its conclusions, always does very good work. And they are the go-to place for estimates of how policy changes will affect tax receipts and the economy. Here is a chart with their estimates of the revenue impact of various changes to business taxation in the Better Way plan. As you can see, the switch to a destination-based system (“border adjustment”) pulls in about $1.2 trillion over 10 years. And you can also see all the good reforms (expensing, rate reduction, etc) that are being financed with the various “pay fors” in the plan.

I am constantly asked how the numbers can work if “border adjustment” is removed from the plan. That’s a very fair question.

But there are lots of potential answers, including:

Make a virtue out of necessity by reducing government revenue by $1.2 trillion.

Reduce the growth of government spending to generate offsetting savings.

Reduce the size of the tax cuts in the Better Way plan by $1.2 trillion.

I’m not pretending that any of these options are politically easy. If they were, the drafters of the Better Way plan probably would have picked them already. But I am suggesting that any of those options would be better than adopting a destination-based system for business taxation.

Ultimately, the debate over the DBCFT is about how different people assess political risks. House Republicans advocating the plan want good things, and they obviously think the downside risks in the future are outweighed by the ability to finance a larger level of good tax reforms today. Skeptics appreciate that those proponents want good policy, but we worry about the long-run consequences of changes that may (especially when the left sooner or late regains control) enable bigger government.

P.S. This is not the first time that advocates of good policy have bickered with each other. During the 2016 nomination battle, Rand Paul and Ted Cruz proposed tax reform plans that fixed many of the bad problems in the tax code. But they financed some of those changes by including value-added taxes in their plans. In the short run, either plan would have been much better than the current system. But I was critical because I worried that the inclusion of VATs would eventually give statists a tool to further increase the burden of government.

THE CORNER THE ONE AND ONLY. Speaker Ryan’s Use of Reporters’ Recorders to Explain His Border Tax Was Cute — But Misleading

Faced with growing opposition to their border-adjustment tax, congressional Republicans are nonetheless on the offensive trying to sell it. I have expressed my many reasons for opposing the tax, including my disbelief that Republicans would support a massive tax increase alongside what is otherwise a pro-growth tax reform. While they oppose tax increases to pay for spending increases in other contexts and usually make the case that spending increases should be paid for by spending cuts, Republicans continue to push for this massive new source of revenue, in spite of the distortions it would introduce.

Until now, supporters of the tax have used many questionable arguments. For instance, they claim we shouldn’t worry about the protectionist aspect of a tax that imposes a 20 percent rate to imports but exempts exports under the hope that the U.S. dollar will adjust fully and quickly. However, there are reasons to believe that while the U.S. currency will adjust, it won’t adjust fully (Federal Reserve Board chairwoman Janet Yellen is only the latest one to stress that point), it won’t adjust as quickly as they claim (especially if the tax is challenged under the World Trade Organization as the Europeans have warned is going to be the case), and it won’t result in unicorns and rainbows.

But the latest misguided statements about the border-adjustment tax comes from House speaker Paul Ryan — who ought to know better. During a press conference last week, he repeated the claim that United States was at a disadvantage because other countries’ exports are exempted from taxes while U.S. goods aren’t. [Ryan] noted that most other countries already border-adjust their taxes and tax goods based on whether they were consumed in their jurisdiction.

That comment is bound to confuse reporters because, as Mr. Ryan must know, no other country border-adjusts their corporate income tax. They border-adjust their Value Added Tax. Conflating the two is misleading, to say the least.

Ryan continued:

The Speaker picked up two reporters’ recorders to give an example of how goods are taxed currently. He suggested one was American-made and the other was Japanese-made. Early on, he dropped one of the recorders, saying “oops” and receiving laughter from the reporters. “Here’s what Japan does when they make this tape recorder: When they send it for export they take the tax off of it, and then it comes to America and it’s not taxed, and it comes through to compete against our good, which was taxed. Theirs was untaxed twice,” Ryan said. “When America makes something, like a tape recorder, we tax it, and then we send it to Japan. As it enters Japan it’s taxed again, to compete against their tape recorder,” he continued. “So we are doing it to ourselves. We are hurting our manufacturing and jobs. We are putting a bias against making things in America in the tax code. . . . That is why we think this is very important. This is good manufacturing policy.”

Oh boy, where do I begin? First, it is true that U.S. companies are at a disadvantage but it is not because of other countries’ tax codes. It is because our corporate-income-tax system has the highest rate of all OECD countries and because, unlike most of our competitors, it taxes U.S. companies’ profits no matter where they are earned in the world. The solution to this disadvantage is to reduce the rates and move to a territorial system. Oh, and by the way, unlike what Ryan and other proponents of a border-adjustment tax would like you to believe, you do not need to move to an expansive destination-based-cash-flow tax to have a territorial tax.

Now let me address the cute tape-recorder example used by the speaker. It is totally misleading because it conflates foreign countries corporate tax and VAT taxes and it paints a picture that is incorrect. For instance, he claims that Japanese exports are exempt from taxes. No, Japanese products exported to the U.S. are exempt from the Japanese VAT but the Japanese company is still paying U.S. corporate tax on its U.S. profits. And you know what? In that sense, the Japanese export is treated exactly like the U.S. goods sold in the U.S. In other words, the playing field is even! I repeat: Japanese goods in the U.S. are taxed like U.S. goods in the U.S.

How about U.S. exports in Japan? Well, it gets hit by the Japanese VAT in Japan and by the Japanese corporate tax but so are Japanese goods sold in Japan. Again, the only disadvantage faced by U.S. companies selling tape recorders abroad comes from the U.S. tax system, which requires that income earned in Japan be taxed by Uncle Sam at 35 percent after benefiting from a tax credit for tax paid in Japan. If the U.S. company decides to keep its Japanese income outside the U.S., the U.S. rate won’t apply.

Dan Mitchell explains why the VAT doesn’t change the terms of trade in this video.

Finally, economists have debunked the idea implied by the speaker that foreign VATs give an advantage to foreign exports — and therefor boost foreign exports. It is simply not true. It follows that imposing a border-adjustment tax in the U.S. will not boost U.S. exports either. Period.

Let me summarize this for you:

No, other countries do not border-adjust their corporate income tax.

Comparing other countries’ VATs and our corporate tax is problematic to say the least.

No, foreign exports sold in the U.S. do not have an advantage over U.S. goods sold in the U.S. Foreign VATs do not boost foreign exports.

A border tax in the U.S. will not boost our exports but it will hurt consumers and many U.S. retailers.

The disadvantage faced by U.S. companies exporting goods abroad comes from the terrible worldwide tax and high rates of the U.S. tax regime, not from other countries’ tax system.

The way to fix the U.S. disadvantage is not to create a new expansive tax that would penalize imports in the U.S. — including imports for the benefit of U.S. domestic companies — and would penalize U.S. consumers.

Who’s Afraid of a Big BAT Tax?

The Border Adjustment Tax, a proposal favored by House Speaker Paul Ryan, has aroused serious opposition from Republican senators.

Joshua Roberts / Reuters

MICHELLE COTTLE

FEB 21, 2017

Donald Trump is feeling good about taxes. In his gonzo press conference last Thursday, he assured Americans that “very historic tax reform” is absolutely on track and is going to be—wait for it!—“big league.” The week before, he told a bunch of airline CEOs that “big league” reform was “way head of schedule” and that his people would be announcing something “phenomenal” in “two or three weeks.” And at his Orlando pep rally this past weekend, he gushed about his idea for a punitive 35 percent border tax on products manufactured overseas. The magic is happening, people. And soon America’s tax code will be the best, most beautiful in the world.

But here’s the thing. What Trump doesn’t know about the legislative process could overflow the pool at Mar-a Lago. And when it comes to tax reform, even minor changes make Congress lose its mind. Weird fault lines appear, and the next thing you know, warring factions have painted their faces blue and vowed to die on the blood-soaked battlefield before allowing this marginal rate to change or that loophole to close.

Such drama has, in fact, already begun over the proposal percolating in the House. At issue: a provision known as the border adjustment tax—let’s call it BAT—which, shrunk to its essence, incentivizes domestic manufacturing by slapping a 20 percent levy on imports, while making U.S. companies’ export-revenues tax deductible.

BAT fans—most notably House Speaker Paul Ryan and Ways and Means Chairman Kevin Brady—pitch the provision as an economically elegant twofer: an America-First measure that discourages companies from moving operations overseas while creating a revenue stream ($1 trillion every decade or so) that allows the overall corporate tax rate to be slashed.

Opponents—most vocally Senators David Perdue and Tom Cotton—argue that a BAT is another grubby government cash grab that will ultimately hurt consumers when, say, Walmart has to jack up the prices of underwear, bananas, and Playstations. In a February 8 letter to colleagues, Perdue, who spent four decades in the business world, charged that the BAT is “regressive, hammers consumers, and shuts down economic growth.”Thus the battle lines are drawn. And, make no mistake, this will not be some bush-league, penny-ante skirmish. Behind the legislative factions are amassing some of the heaviest hitters in corporate America, ready to spend millions to sway debate on behalf of their team.Roughly speaking, companies that do a lot of exporting dig the BAT (think: Boeing, Merck, and Dow Chemical) while import-dependent retailers (including Target, Nike, and, yes, Walmart) fear it will destroy their bottom lines. The oil industry isn’t feeling much BAT love either. The Koch brothers want it dead, like, yesterday.At this point, anti-BATers have an edge. Why? Partly, because the provision is super complicated and almost impossible to explain in terms that don’t sound like something a coven of economists vomited up. Ask BAT fans why the provision won’t, in fact, hurt retailers or consumers, and you’re instantly hip-deep in talk of currency revaluation, purchasing power, and territorial taxation. Last Wednesday, one day after Paul Ryan tried to educate Senate Republicans on the wonders of BAT at their weekly policy lunch, Tom Cotton (who represents Walmart’s home state of Arkansas) snarked on the Senate floor, “Some ideas are so stupid only an intellectual could believe them.”

This is in no way to suggest that the pro-BAT arguments are wrong. They simply don’t push the same buttons as anti-BAT warnings that Congress is poised to screw consumers in order to fund big tax cuts for corporations.For the past few weeks, in fact, an anti-BAT coalition called Americans for Affordable Products has been busy hawking this exact message. “This is a consumer tax—a means by which House Republicans are paying for other tax deductions,” asserted AAP member Brian Dodge. “It’s not about America First. It’s not a trade-deficit reduction tool. It is a pay-for.”AAP is lobbying lawmakers and staffers and doing public outreach. Last Wednesday, it dispatched eight CEOs to chat with Trump and Vice President Pence. “We view our job as leading a large education campaign,” said Dodge. “We believe the more that lawmakers understand about this proposal, the less inclined they’ll be to support it.”Of course, BAT fans are gearing up as well and promise to be equally aggressive. The day after the AAP roll out, the American Made Coalition launched, with an eye toward helping Ryan’s office spread the good word. “It takes time to educate both policy makers and businesses on what’s on the table,” said Brian Reardon, an adviser to the group.There is no place for subtlety in this war. Part of BAT supporters’ argument is that, without the provision, tax overhaul will implode altogether. Message: Get on board or kiss your once-in-a-lifetime reform opportunity good-bye.It’s a question of Senate math. To pass with a simple majority (and avoid a filibuster by Democrats), the GOP’s plan must go through under the procedure known as reconciliation. But to qualify for reconciliation, the package–which slashes both corporate and upper-bracket taxes–cannot blow a hole in the long-term budget. Without the $1 trillion in revenues from BAT, say advocates, there’s no way that hole can be plugged.“This is the only way at these rates and keeping things revenue neutral,” insisted a senior Republican aide. There is no other viable option. Period. End of story.But anti-BATers are eyeing a different Senate equation. To amass even a simple majority of votes, the BAT can lose only two of the 52 Republican members. (Unless Democrats cross the aisle, of course.) In addition to Cotton’s and Perdue’s open hostility, Senators John Boozman, Mike Rounds, John Cornyn, Tim Scott, and Mike Lee have all expressed reservations. “I have real concerns that this piece of the House blueprint will cause more disruption than necessary,” Lee said. “Will the dollar suddenly shoot up by 20 percent? Will U.S. manufacturers have to redo their international supply chains? These are all open questions.”

With the provision’s Senate prospects iffy, there’s less incentive for House conservatives to support something that smells even faintly like a tax. Both the current chairman of the Freedom Caucus, Mark Meadows, and the former chairman, Jim Jordan, have said they’d like reform done without a BAT.

“My reasoning is very basic,” Jordan told me. “Why in the world would we want to add another revenue stream?” You can debate the impact on exchange rates and purchasing power all day, said Jordan, but that doesn’t address many conservatives’ core objection. “We come at it from fundamental perspective,” he said. “The idea that you’re going to add an entirely new tax is a big problem.”

(BAT fans, for the record, dispute that this is a new tax. It is, they insist, replacing the existing system with an entirely new, far superior one that must be looked at, as Reardon put it, “holistically.”)

The only thing everyone can agree on is that this will be a long, ugly fight. If Trump drops his tariff idea and embraces BAT, it could boost the cause. But even then, he’d need to do major arm-twisting to get Senate skeptics on board (especially with the likes of Walmart and the Kochs twisting the other arm.) Like it or not, this is what the political big leagues are like: slow, messy, and infuriating.

The up side for Trump: He’ll have time to throw a lot more pep rallies on this topic before anything gets decided.

Summary of the Latest Federal Income Tax Data, 2016 Update

The Internal Revenue Service has recently released new data on individual income taxes for calendar year 2014, showing the number of taxpayers, adjusted gross income, and income tax shares by income percentiles.[1]

The data demonstrates that the U.S. individual income tax continues to be very progressive, borne mainly by the highest income earners.

In 2014, 139.6 million taxpayers reported earning $9.71 trillion in adjusted gross income and paid $1.37 trillion in individual income taxes.

The share of income earned by the top 1 percent of taxpayers rose to 20.6 percent in 2014. Their share of federal individual income taxes also rose, to 39.5 percent.

In 2014, the top 50 percent of all taxpayers paid 97.3 percent of all individual income taxes while the bottom 50 percent paid the remaining 2.7 percent.

The top 1 percent paid a greater share of individual income taxes (39.5 percent) than the bottom 90 percent combined (29.1 percent).

The top 1 percent of taxpayers paid a 27.1 percent individual income tax rate, which is more than seven times higher than taxpayers in the bottom 50 percent (3.5 percent).

Reported Income and Taxes Paid Both Increased Significantly in 2014

Taxpayers reported $9.71 trillion in adjusted gross income (AGI) on 139.5 million tax returns in 2014. Total AGI grew by $675 billion from the previous year’s levels. There were 1.2 million more returns filed in 2014 than in 2013, meaning that average AGI rose by $4,252 per return, or 6.5 percent.

Meanwhile, taxpayers paid $1.37 trillion in individual income taxes in 2014, an 11.5 percent increase from taxes paid in the previous year. The average individual income tax rate for all taxpayers rose from 13.64 percent to 14.16 percent. Moreover, the average tax rate increased for all income groups, except for the top 0.1 percent of taxpayers, whose average rate decreased from 27.91 percent to 27.67 percent.

The most likely explanation behind the higher tax rates in 2014 is a phenomenon known as “real bracket creep.” [2] As incomes rise, households are pushed into higher tax brackets, and are subject to higher overall tax rates on their income. On the other hand, the likely reason why the top 0.1 percent of households saw a slightly lower tax rate in 2014 is because a higher portion of their income consisted of long-term capital gains, which are subject to lower tax rates.[3]

The share of income earned by the top 1 percent rose to 20.58 percent of total AGI, up from 19.04 percent in 2013. The share of the income tax burden for the top 1 percent also rose, from 37.80 percent in 2013 to 39.48 percent in 2014.

Top 1%

Top 5%

Top 10%

Top 25%

Top 50%

Bottom 50%

All Taxpayers

Table 1. Summary of Federal Income Tax Data, 2014

Number of Returns

1,395,620

6,978,102

13,956,203

34,890,509

69,781,017

69,781,017

139,562,034

Adjusted Gross Income ($ millions)

$1,997,819

$3,490,867

$4,583,416

$6,690,287

$8,614,544

$1,094,119

$9,708,663

Share of Total Adjusted Gross Income

20.58%

35.96%

47.21%

68.91%

88.73%

11.27%

100.00%

Income Taxes Paid ($ millions)

$542,640

$824,153

$974,124

$1,192,679

$1,336,637

$37,740

$1,374,379

Share of Total Income Taxes Paid

39.48%

59.97%

70.88%

86.78%

97.25%

2.75%

100.00%

Income Split Point

$465,626

$188,996

$133,445

$77,714

$38,173

Average Tax Rate

27.16%

23.61%

21.25%

17.83%

15.52%

3.45%

14.16%

Note: Does not include dependent filers

High-Income Americans Paid the Majority of Federal Taxes

In 2014, the bottom 50 percent of taxpayers (those with AGIs below $38,173) earned 11.27 percent of total AGI. This group of taxpayers paid approximately $38 billion in taxes, or 2.75 percent of all income taxes in 2014.

In contrast, the top 1 percent of all taxpayers (taxpayers with AGIs of $465,626 and above) earned 20.58 percent of all AGI in 2014, but paid 39.48 percent of all federal income taxes.

In 2014, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined. The top 1 percent of taxpayers paid $543 billion, or 39.48 percent of all income taxes, while the bottom 90 percent paid $400 billion, or 29.12 percent of all income taxes.

Figure 1.

High-Income Taxpayers Pay the Highest Average Tax Rates

The 2014 IRS data shows that taxpayers with higher incomes pay much higher average individual income tax rates than lower-income taxpayers.[4]

The bottom 50 percent of taxpayers (taxpayers with AGIs below $38,173) faced an average income tax rate of 3.45 percent. As household income increases, the IRS data shows that average income tax rates rise. For example, taxpayers with AGIs between the 10th and 5th percentile ($133,445 and $188,996) pay an average rate of 13.7 percent – almost four times the rate paid by those in the bottom 50 percent.

The top 1 percent of taxpayers (AGI of $465,626 and above) paid the highest effective income tax rate, at 27.2 percent, 7.9 times the rate faced by the bottom 50 percent of taxpayers.

Figure 2.

Taxpayers at the very top of the income distribution, the top 0.1 percent (with AGIs over $2.14 million), paid an even higher average tax rate, of 27.7 percent.

The Tax Reform Act of 1986 changed the definition of AGI, so data above and below this line not strictly comparable

1987

106,155

1,062

5,308

5,308

10,615

15,923

26,539

26,539

53,077

53,077

1988

108,873

1,089

5,444

5,444

10,887

16,331

27,218

27,218

54,436

54,436

1989

111,313

1,113

5,566

5,566

11,131

16,697

27,828

27,828

55,656

55,656

1990

112,812

1,128

5,641

5,641

11,281

16,922

28,203

28,203

56,406

56,406

1991

113,804

1,138

5,690

5,690

11,380

17,071

28,451

28,451

56,902

56,902

1992

112,653

1,127

5,633

5,633

11,265

16,898

28,163

28,163

56,326

56,326

1993

113,681

1,137

5,684

5,684

11,368

17,052

28,420

28,420

56,841

56,841

1994

114,990

1,150

5,749

5,749

11,499

17,248

28,747

28,747

57,495

57,495

1995

117,274

1,173

5,864

5,864

11,727

17,591

29,319

29,319

58,637

58,637

1996

119,442

1,194

5,972

5,972

11,944

17,916

29,860

29,860

59,721

59,721

1997

121,503

1,215

6,075

6,075

12,150

18,225

30,376

30,376

60,752

60,752

1998

123,776

1,238

6,189

6,189

12,378

18,566

30,944

30,944

61,888

61,888

1999

126,009

1,260

6,300

6,300

12,601

18,901

31,502

31,502

63,004

63,004

2000

128,227

1,282

6,411

6,411

12,823

19,234

32,057

32,057

64,114

64,114

The IRS changed methodology, so data above and below this line not strictly comparable

2001

119,371

119

1,194

5,969

5,969

11,937

17,906

29,843

29,843

59,685

59,685

2002

119,851

120

1,199

5,993

5,993

11,985

17,978

29,963

29,963

59,925

59,925

2003

120,759

121

1,208

6,038

6,038

12,076

18,114

30,190

30,190

60,379

60,379

2004

122,510

123

1,225

6,125

6,125

12,251

18,376

30,627

30,627

61,255

61,255

2005

124,673

125

1,247

6,234

6,234

12,467

18,701

31,168

31,168

62,337

62,337

2006

128,441

128

1,284

6,422

6,422

12,844

19,266

32,110

32,110

64,221

64,221

2007

132,655

133

1,327

6,633

6,633

13,265

19,898

33,164

33,164

66,327

66,327

2008

132,892

133

1,329

6,645

6,645

13,289

19,934

33,223

33,223

66,446

66,446

2009

132,620

133

1,326

6,631

6,631

13,262

19,893

33,155

33,155

66,310

66,310

2010

135,033

135

1,350

6,752

6,752

13,503

20,255

33,758

33,758

67,517

67,517

2011

136,586

137

1,366

6,829

6,829

13,659

20,488

34,146

34,146

68,293

68,293

2012

136,080

136

1,361

6,804

6,804

13,608

20,412

34,020

34,020

68,040

68,040

2013

138,313

138

1,383

6,916

6,916

13,831

20,747

34,578

34,578

69,157

69,157

2014

139,562

140

1,396

6,978

6,978

13,956

20,934

34,891

34,891

69,781

69,781

Year

Total

Top 0.1%

Top 1%

Top 5%

Between 5% & 10%

Top 10%

Between 10% & 25%

Top 25%

Between 25% & 50%

Top 50%

Bottom 50%

Table 3. Adjusted Gross Income of Taxpayers in Various Income Brackets, 1980–2014 ($Billions)

Source: Internal Revenue Service.

1980

$1,627

$138

$342

$181

$523

$400

$922

$417

$1,339

$288

1981

$1,791

$149

$372

$201

$573

$442

$1,015

$458

$1,473

$318

1982

$1,876

$167

$398

$207

$605

$460

$1,065

$478

$1,544

$332

1983

$1,970

$183

$428

$217

$646

$481

$1,127

$498

$1,625

$344

1984

$2,173

$210

$482

$240

$723

$528

$1,251

$543

$1,794

$379

1985

$2,344

$235

$531

$260

$791

$567

$1,359

$580

$1,939

$405

1986

$2,524

$285

$608

$278

$887

$604

$1,490

$613

$2,104

$421

The Tax Reform Act of 1986 changed the definition of AGI, so data above and below this line not strictly comparable

1987

$2,814

$347

$722

$316

$1,038

$671

$1,709

$664

$2,374

$440

1988

$3,124

$474

$891

$342

$1,233

$718

$1,951

$707

$2,658

$466

1989

$3,299

$468

$918

$368

$1,287

$768

$2,054

$751

$2,805

$494

1990

$3,451

$483

$953

$385

$1,338

$806

$2,144

$788

$2,933

$519

1991

$3,516

$457

$943

$400

$1,343

$832

$2,175

$809

$2,984

$532

1992

$3,681

$524

$1,031

$413

$1,444

$856

$2,299

$832

$3,131

$549

1993

$3,776

$521

$1,048

$426

$1,474

$883

$2,358

$854

$3,212

$563

1994

$3,961

$547

$1,103

$449

$1,552

$929

$2,481

$890

$3,371

$590

1995

$4,245

$620

$1,223

$482

$1,705

$985

$2,690

$938

$3,628

$617

1996

$4,591

$737

$1,394

$515

$1,909

$1,043

$2,953

$992

$3,944

$646

1997

$5,023

$873

$1,597

$554

$2,151

$1,116

$3,268

$1,060

$4,328

$695

1998

$5,469

$1,010

$1,797

$597

$2,394

$1,196

$3,590

$1,132

$4,721

$748

1999

$5,909

$1,153

$2,012

$641

$2,653

$1,274

$3,927

$1,199

$5,126

$783

2000

$6,424

$1,337

$2,267

$688

$2,955

$1,358

$4,314

$1,276

$5,590

$834

The IRS changed methodology, so data above and below this line not strictly comparable

2001

$6,116

$492

$1,065

$1,934

$666

$2,600

$1,334

$3,933

$1,302

$5,235

$881

2002

$5,982

$421

$960

$1,812

$660

$2,472

$1,339

$3,812

$1,303

$5,115

$867

2003

$6,157

$466

$1,030

$1,908

$679

$2,587

$1,375

$3,962

$1,325

$5,287

$870

2004

$6,735

$615

$1,279

$2,243

$725

$2,968

$1,455

$4,423

$1,403

$5,826

$908

2005

$7,366

$784

$1,561

$2,623

$778

$3,401

$1,540

$4,940

$1,473

$6,413

$953

2006

$7,970

$895

$1,761

$2,918

$841

$3,760

$1,652

$5,412

$1,568

$6,980

$990

2007

$8,622

$1,030

$1,971

$3,223

$905

$4,128

$1,770

$5,898

$1,673

$7,571

$1,051

2008

$8,206

$826

$1,657

$2,868

$905

$3,773

$1,782

$5,555

$1,673

$7,228

$978

2009

$7,579

$602

$1,305

$2,439

$878

$3,317

$1,740

$5,058

$1,620

$6,678

$900

2010

$8,040

$743

$1,517

$2,716

$915

$3,631

$1,800

$5,431

$1,665

$7,096

$944

2011

$8,317

$737

$1,556

$2,819

$956

$3,775

$1,866

$5,641

$1,716

$7,357

$961

2012

$9,042

$1,017

$1,977

$3,331

$997

$4,328

$1,934

$6,262

$1,776

$8,038

$1,004

2013

$9,034

$816

$1,720

$3,109

$1,034

$4,143

$2,008

$6,152

$1,844

$7,996

$1,038

2014

$9,709

$986

$1,998

$3,491

$1,093

$4,583

$2,107

$6,690

$1,924

$8,615

$1,094

Year

Total

Top 0.1%

Top 1%

Top 5%

Between 5% & 10%

Top 10%

Between 10% & 25%

Top 25%

Between 25% & 50%

Top 50%

Bottom 50%

Table 4. Total Income Tax after Credits, 1980–2014 ($Billions)

Source: Internal Revenue Service.

1980

$249

$47

$92

$31

$123

$59

$182

$50

$232

$18

1981

$282

$50

$99

$36

$135

$69

$204

$57

$261

$21

1982

$276

$53

$100

$34

$134

$66

$200

$56

$256

$20

1983

$272

$55

$101

$34

$135

$64

$199

$54

$252

$19

1984

$297

$63

$113

$37

$150

$68

$219

$57

$276

$22

1985

$322

$70

$125

$41

$166

$73

$238

$60

$299

$23

1986

$367

$94

$156

$44

$201

$78

$279

$64

$343

$24

The Tax Reform Act of 1986 changed the definition of AGI, so data above and below this line not strictly comparable

1987

$369

$92

$160

$46

$205

$79

$284

$63

$347

$22

1988

$413

$114

$188

$48

$236

$85

$321

$68

$389

$24

1989

$433

$109

$190

$51

$241

$93

$334

$73

$408

$25

1990

$447

$112

$195

$52

$248

$97

$344

$77

$421

$26

1991

$448

$111

$194

$56

$250

$96

$347

$77

$424

$25

1992

$476

$131

$218

$58

$276

$97

$374

$78

$452

$24

1993

$503

$146

$238

$60

$298

$101

$399

$80

$479

$24

1994

$535

$154

$254

$64

$318

$108

$425

$84

$509

$25

1995

$588

$178

$288

$70

$357

$115

$473

$88

$561

$27

1996

$658

$213

$335

$76

$411

$124

$535

$95

$630

$28

1997

$727

$241

$377

$82

$460

$134

$594

$102

$696

$31

1998

$788

$274

$425

$88

$513

$139

$652

$103

$755

$33

1999

$877

$317

$486

$97

$583

$150

$733

$109

$842

$35

2000

$981

$367

$554

$106

$660

$164

$824

$118

$942

$38

The IRS changed methodology, so data above and below this line not strictly comparable

2001

$885

$139

$294

$462

$101

$564

$158

$722

$120

$842

$43

2002

$794

$120

$263

$420

$93

$513

$143

$657

$104

$761

$33

2003

$746

$115

$251

$399

$85

$484

$133

$617

$98

$715

$30

2004

$829

$142

$301

$467

$91

$558

$137

$695

$102

$797

$32

2005

$932

$176

$361

$549

$98

$647

$145

$793

$106

$898

$33

2006

$1,020

$196

$402

$607

$108

$715

$157

$872

$113

$986

$35

2007

$1,112

$221

$443

$666

$117

$783

$170

$953

$122

$1,075

$37

2008

$1,029

$187

$386

$597

$115

$712

$168

$880

$117

$997

$32

2009

$863

$146

$314

$502

$101

$604

$146

$749

$93

$842

$21

2010

$949

$170

$355

$561

$110

$670

$156

$827

$100

$927

$22

2011

$1,043

$168

$366

$589

$123

$712

$181

$893

$120

$1,012

$30

2012

$1,185

$220

$451

$699

$133

$831

$193

$1,024

$128

$1,152

$33

2013

$1,232

$228

$466

$721

$139

$860

$203

$1,063

$135

$1,198

$34

2014

$1,374

$273

$543

$824

$150

$974

$219

$1,193

$144

$1,337

$38

Year

Total

Top 0.1%

Top 1%

Top 5%

Between 5% & 10%

Top 10%

Between 10% & 25%

Top 25%

Between 25% & 50%

Top 50%

Bottom 50%

Table 5. Adjusted Gross Income Shares, 1980–2014 (percent of total AGI earned by each group)

Source: Internal Revenue Service.

1980

100%

8.46%

21.01%

11.12%

32.13%

24.57%

56.70%

25.62%

82.32%

17.68%

1981

100%

8.30%

20.78%

11.20%

31.98%

24.69%

56.67%

25.59%

82.25%

17.75%

1982

100%

8.91%

21.23%

11.03%

32.26%

24.53%

56.79%

25.50%

82.29%

17.71%

1983

100%

9.29%

21.74%

11.04%

32.78%

24.44%

57.22%

25.30%

82.52%

17.48%

1984

100%

9.66%

22.19%

11.06%

33.25%

24.31%

57.56%

25.00%

82.56%

17.44%

1985

100%

10.03%

22.67%

11.10%

33.77%

24.21%

57.97%

24.77%

82.74%

17.26%

1986

100%

11.30%

24.11%

11.02%

35.12%

23.92%

59.04%

24.30%

83.34%

16.66%

The Tax Reform Act of 1986 changed the definition of AGI, so data above and below this line not strictly comparable

1987

100%

12.32%

25.67%

11.23%

36.90%

23.85%

60.75%

23.62%

84.37%

15.63%

1988

100%

15.16%

28.51%

10.94%

39.45%

22.99%

62.44%

22.63%

85.07%

14.93%

1989

100%

14.19%

27.84%

11.16%

39.00%

23.28%

62.28%

22.76%

85.04%

14.96%

1990

100%

14.00%

27.62%

11.15%

38.77%

23.36%

62.13%

22.84%

84.97%

15.03%

1991

100%

12.99%

26.83%

11.37%

38.20%

23.65%

61.85%

23.01%

84.87%

15.13%

1992

100%

14.23%

28.01%

11.21%

39.23%

23.25%

62.47%

22.61%

85.08%

14.92%

1993

100%

13.79%

27.76%

11.29%

39.05%

23.40%

62.45%

22.63%

85.08%

14.92%

1994

100%

13.80%

27.85%

11.34%

39.19%

23.45%

62.64%

22.48%

85.11%

14.89%

1995

100%

14.60%

28.81%

11.35%

40.16%

23.21%

63.37%

22.09%

85.46%

14.54%

1996

100%

16.04%

30.36%

11.23%

41.59%

22.73%

64.32%

21.60%

85.92%

14.08%

1997

100%

17.38%

31.79%

11.03%

42.83%

22.22%

65.05%

21.11%

86.16%

13.84%

1998

100%

18.47%

32.85%

10.92%

43.77%

21.87%

65.63%

20.69%

86.33%

13.67%

1999

100%

19.51%

34.04%

10.85%

44.89%

21.57%

66.46%

20.29%

86.75%

13.25%

2000

100%

20.81%

35.30%

10.71%

46.01%

21.15%

67.15%

19.86%

87.01%

12.99%

The IRS changed methodology, so data above and below this line not strictly comparable

2001

100%

8.05%

17.41%

31.61%

10.89%

42.50%

21.80%

64.31%

21.29%

85.60%

14.40%

2002

100%

7.04%

16.05%

30.29%

11.04%

41.33%

22.39%

63.71%

21.79%

85.50%

14.50%

2003

100%

7.56%

16.73%

30.99%

11.03%

42.01%

22.33%

64.34%

21.52%

85.87%

14.13%

2004

100%

9.14%

18.99%

33.31%

10.77%

44.07%

21.60%

65.68%

20.83%

86.51%

13.49%

2005

100%

10.64%

21.19%

35.61%

10.56%

46.17%

20.90%

67.07%

19.99%

87.06%

12.94%

2006

100%

11.23%

22.10%

36.62%

10.56%

47.17%

20.73%

67.91%

19.68%

87.58%

12.42%

2007

100%

11.95%

22.86%

37.39%

10.49%

47.88%

20.53%

68.41%

19.40%

87.81%

12.19%

2008

100%

10.06%

20.19%

34.95%

11.03%

45.98%

21.71%

67.69%

20.39%

88.08%

11.92%

2009

100%

7.94%

17.21%

32.18%

11.59%

43.77%

22.96%

66.74%

21.38%

88.12%

11.88%

2010

100%

9.24%

18.87%

33.78%

11.38%

45.17%

22.38%

67.55%

20.71%

88.26%

11.74%

2011

100%

8.86%

18.70%

33.89%

11.50%

45.39%

22.43%

67.82%

20.63%

88.45%

11.55%

2012

100%

11.25%

21.86%

36.84%

11.03%

47.87%

21.39%

69.25%

19.64%

88.90%

11.10%

2013

100%

9.03%

19.04%

34.42%

11.45%

45.87%

22.23%

68.10%

20.41%

88.51%

11.49%

2014

100%

10.16%

20.58%

35.96%

11.25%

47.21%

21.70%

68.91%

19.82%

88.73%

11.27%

Year

Total

Top 0.1%

Top 1%

Top 5%

Between 5% & 10%

Top 10%

Between 10% & 25%

Top 25%

Between 25% & 50%

Top 50%

Bottom 50%

Table 6. Total Income Tax Shares, 1980–2014 (percent of federal income tax paid by each group)

Source: Internal Revenue Service.

1980

100%

19.05%

36.84%

12.44%

49.28%

23.74%

73.02%

19.93%

92.95%

7.05%

1981

100%

17.58%

35.06%

12.90%

47.96%

24.33%

72.29%

20.26%

92.55%

7.45%

1982

100%

19.03%

36.13%

12.45%

48.59%

23.91%

72.50%

20.15%

92.65%

7.35%

1983

100%

20.32%

37.26%

12.44%

49.71%

23.39%

73.10%

19.73%

92.83%

7.17%

1984

100%

21.12%

37.98%

12.58%

50.56%

22.92%

73.49%

19.16%

92.65%

7.35%

1985

100%

21.81%

38.78%

12.67%

51.46%

22.60%

74.06%

18.77%

92.83%

7.17%

1986

100%

25.75%

42.57%

12.12%

54.69%

21.33%

76.02%

17.52%

93.54%

6.46%

The Tax Reform Act of 1986 changed the definition of AGI, so data above and below this line not strictly comparable

1987

100%

24.81%

43.26%

12.35%

55.61%

21.31%

76.92%

17.02%

93.93%

6.07%

1988

100%

27.58%

45.62%

11.66%

57.28%

20.57%

77.84%

16.44%

94.28%

5.72%

1989

100%

25.24%

43.94%

11.85%

55.78%

21.44%

77.22%

16.94%

94.17%

5.83%

1990

100%

25.13%

43.64%

11.73%

55.36%

21.66%

77.02%

17.16%

94.19%

5.81%

1991

100%

24.82%

43.38%

12.45%

55.82%

21.46%

77.29%

17.23%

94.52%

5.48%

1992

100%

27.54%

45.88%

12.12%

58.01%

20.47%

78.48%

16.46%

94.94%

5.06%

1993

100%

29.01%

47.36%

11.88%

59.24%

20.03%

79.27%

15.92%

95.19%

4.81%

1994

100%

28.86%

47.52%

11.93%

59.45%

20.10%

79.55%

15.68%

95.23%

4.77%

1995

100%

30.26%

48.91%

11.84%

60.75%

19.62%

80.36%

15.03%

95.39%

4.61%

1996

100%

32.31%

50.97%

11.54%

62.51%

18.80%

81.32%

14.36%

95.68%

4.32%

1997

100%

33.17%

51.87%

11.33%

63.20%

18.47%

81.67%

14.05%

95.72%

4.28%

1998

100%

34.75%

53.84%

11.20%

65.04%

17.65%

82.69%

13.10%

95.79%

4.21%

1999

100%

36.18%

55.45%

11.00%

66.45%

17.09%

83.54%

12.46%

96.00%

4.00%

2000

100%

37.42%

56.47%

10.86%

67.33%

16.68%

84.01%

12.08%

96.09%

3.91%

The IRS changed methodology, so data above and below this line not strictly comparable

2001

100%

15.68%

33.22%

52.24%

11.44%

63.68%

17.88%

81.56%

13.54%

95.10%

4.90%

2002

100%

15.09%

33.09%

52.86%

11.77%

64.63%

18.04%

82.67%

13.12%

95.79%

4.21%

2003

100%

15.37%

33.69%

53.54%

11.35%

64.89%

17.87%

82.76%

13.17%

95.93%

4.07%

2004

100%

17.12%

36.28%

56.35%

10.96%

67.30%

16.52%

83.82%

12.31%

96.13%

3.87%

2005

100%

18.91%

38.78%

58.93%

10.52%

69.46%

15.61%

85.07%

11.35%

96.41%

3.59%

2006

100%

19.24%

39.36%

59.49%

10.59%

70.08%

15.41%

85.49%

11.10%

96.59%

3.41%

2007

100%

19.84%

39.81%

59.90%

10.51%

70.41%

15.30%

85.71%

10.93%

96.64%

3.36%

2008

100%

18.20%

37.51%

58.06%

11.14%

69.20%

16.37%

85.57%

11.33%

96.90%

3.10%

2009

100%

16.91%

36.34%

58.17%

11.72%

69.89%

16.85%

86.74%

10.80%

97.54%

2.46%

2010

100%

17.88%

37.38%

59.07%

11.55%

70.62%

16.49%

87.11%

10.53%

97.64%

2.36%

2011

100%

16.14%

35.06%

56.49%

11.77%

68.26%

17.36%

85.62%

11.50%

97.11%

2.89%

2012

100%

18.60%

38.09%

58.95%

11.22%

70.17%

16.25%

86.42%

10.80%

97.22%

2.78%

2013

100%

18.48%

37.80%

58.55%

11.25%

69.80%

16.47%

86.27%

10.94%

97.22%

2.78%

2014

100%

19.85%

39.48%

59.97%

10.91%

70.88%

15.90%

86.78%

10.47%

97.25%

2.75%

Year

Total

Top 1%

Top 5%

Top 10%

Top 25%

Top 50%

Table 7. Dollar Cut-Off, 1980–2014 (Minimum AGI for Tax Returns to Fall into Various Percentiles; Thresholds Not Adjusted for Inflation)

1980

$80,580

$43,792

$35,070

$23,606

$12,936

1981

$85,428

$47,845

$38,283

$25,655

$14,000

1982

$89,388

$49,284

$39,676

$27,027

$14,539

1983

$93,512

$51,553

$41,222

$27,827

$15,044

1984

$100,889

$55,423

$43,956

$29,360

$15,998

1985

$108,134

$58,883

$46,322

$30,928

$16,688

1986

$118,818

$62,377

$48,656

$32,242

$17,302

The Tax Reform Act of 1986 changed the definition of AGI, so data above and below this line not strictly comparable

1987

$139,289

$68,414

$52,921

$33,983

$17,768

1988

$157,136

$72,735

$55,437

$35,398

$18,367

1989

$163,869

$76,933

$58,263

$36,839

$18,993

1990

$167,421

$79,064

$60,287

$38,080

$19,767

1991

$170,139

$81,720

$61,944

$38,929

$20,097

1992

$181,904

$85,103

$64,457

$40,378

$20,803

1993

$185,715

$87,386

$66,077

$41,210

$21,179

1994

$195,726

$91,226

$68,753

$42,742

$21,802

1995

$209,406

$96,221

$72,094

$44,207

$22,344

1996

$227,546

$101,141

$74,986

$45,757

$23,174

1997

$250,736

$108,048

$79,212

$48,173

$24,393

1998

$269,496

$114,729

$83,220

$50,607

$25,491

1999

$293,415

$120,846

$87,682

$52,965

$26,415

2000

$313,469

$128,336

$92,144

$55,225

$27,682

The IRS changed methodology, so data above and below this line not strictly comparable

2001

$1,393,718

$306,635

$132,082

$96,151

$59,026

$31,418

2002

$1,245,352

$296,194

$130,750

$95,699

$59,066

$31,299

2003

$1,317,088

$305,939

$133,741

$97,470

$59,896

$31,447

2004

$1,617,918

$339,993

$140,758

$101,838

$62,794

$32,622

2005

$1,938,175

$379,261

$149,216

$106,864

$64,821

$33,484

2006

$2,124,625

$402,603

$157,390

$112,016

$67,291

$34,417

2007

$2,251,017

$426,439

$164,883

$116,396

$69,559

$35,541

2008

$1,867,652

$392,513

$163,512

$116,813

$69,813

$35,340

2009

$1,469,393

$351,968

$157,342

$114,181

$68,216

$34,156

2010

$1,634,386

$369,691

$161,579

$116,623

$69,126

$34,338

2011

$1,717,675

$388,905

$167,728

$120,136

$70,492

$34,823

2012

$2,161,175

$434,682

$175,817

$125,195

$73,354

$36,055

2013

$1,860,848

$428,713

$179,760

$127,695

$74,955

$36,841

2014

$2,136,762

$465,626

$188,996

$133,445

$77,714

$38,173

Source: Internal Revenue Service.

Year

Total

Top 0.1%

Top 1%

Top 5%

Between 5% & 10%

Top 10%

Between 10% & 25%

Top 25%

Between 25% & 50%

Top 50%

Bottom 50%

Table 8. Average Tax Rate, 1980–2014 (Percent of AGI Paid in Income Taxes)

Source: Internal Revenue Service.

1980

15.31%

34.47%

26.85%

17.13%

23.49%

14.80%

19.72%

11.91%

17.29%

6.10%

1981

15.76%

33.37%

26.59%

18.16%

23.64%

15.53%

20.11%

12.48%

17.73%

6.62%

1982

14.72%

31.43%

25.05%

16.61%

22.17%

14.35%

18.79%

11.63%

16.57%

6.10%

1983

13.79%

30.18%

23.64%

15.54%

20.91%

13.20%

17.62%

10.76%

15.52%

5.66%

1984

13.68%

29.92%

23.42%

15.57%

20.81%

12.90%

17.47%

10.48%

15.35%

5.77%

1985

13.73%

29.86%

23.50%

15.69%

20.93%

12.83%

17.55%

10.41%

15.41%

5.70%

1986

14.54%

33.13%

25.68%

15.99%

22.64%

12.97%

18.72%

10.48%

16.32%

5.63%

The Tax Reform Act of 1986 changed the definition of AGI, so data above and below this line not strictly comparable

1987

13.12%

26.41%

22.10%

14.43%

19.77%

11.71%

16.61%

9.45%

14.60%

5.09%

1988

13.21%

24.04%

21.14%

14.07%

19.18%

11.82%

16.47%

9.60%

14.64%

5.06%

1989

13.12%

23.34%

20.71%

13.93%

18.77%

12.08%

16.27%

9.77%

14.53%

5.11%

1990

12.95%

23.25%

20.46%

13.63%

18.50%

12.01%

16.06%

9.73%

14.36%

5.01%

1991

12.75%

24.37%

20.62%

13.96%

18.63%

11.57%

15.93%

9.55%

14.20%

4.62%

1992

12.94%

25.05%

21.19%

13.99%

19.13%

11.39%

16.25%

9.42%

14.44%

4.39%

1993

13.32%

28.01%

22.71%

14.01%

20.20%

11.40%

16.90%

9.37%

14.90%

4.29%

1994

13.50%

28.23%

23.04%

14.20%

20.48%

11.57%

17.15%

9.42%

15.11%

4.32%

1995

13.86%

28.73%

23.53%

14.46%

20.97%

11.71%

17.58%

9.43%

15.47%

4.39%

1996

14.34%

28.87%

24.07%

14.74%

21.55%

11.86%

18.12%

9.53%

15.96%

4.40%

1997

14.48%

27.64%

23.62%

14.87%

21.36%

12.04%

18.18%

9.63%

16.09%

4.48%

1998

14.42%

27.12%

23.63%

14.79%

21.42%

11.63%

18.16%

9.12%

16.00%

4.44%

1999

14.85%

27.53%

24.18%

15.06%

21.98%

11.76%

18.66%

9.12%

16.43%

4.48%

2000

15.26%

27.45%

24.42%

15.48%

22.34%

12.04%

19.09%

9.28%

16.86%

4.60%

The IRS changed methodology, so data above and below this line not strictly comparable

2001

14.47%

28.17%

27.60%

23.91%

15.20%

21.68%

11.87%

18.35%

9.20%

16.08%

4.92%

2002

13.28%

28.48%

27.37%

23.17%

14.15%

20.76%

10.70%

17.23%

8.00%

14.87%

3.86%

2003

12.11%

24.60%

24.38%

20.92%

12.46%

18.70%

9.69%

15.57%

7.41%

13.53%

3.49%

2004

12.31%

23.06%

23.52%

20.83%

12.53%

18.80%

9.41%

15.71%

7.27%

13.68%

3.53%

2005

12.65%

22.48%

23.15%

20.93%

12.61%

19.03%

9.45%

16.04%

7.18%

14.01%

3.51%

2006

12.80%

21.94%

22.80%

20.80%

12.84%

19.02%

9.52%

16.12%

7.22%

14.12%

3.51%

2007

12.90%

21.42%

22.46%

20.66%

12.92%

18.96%

9.61%

16.16%

7.27%

14.19%

3.56%

2008

12.54%

22.67%

23.29%

20.83%

12.66%

18.87%

9.45%

15.85%

6.97%

13.79%

3.26%

2009

11.39%

24.28%

24.05%

20.59%

11.53%

18.19%

8.36%

14.81%

5.76%

12.61%

2.35%

2010

11.81%

22.84%

23.39%

20.64%

11.98%

18.46%

8.70%

15.22%

6.01%

13.06%

2.37%

2011

12.54%

22.82%

23.50%

20.89%

12.83%

18.85%

9.70%

15.82%

6.98%

13.76%

3.13%

2012

13.11%

21.67%

22.83%

20.97%

13.33%

19.21%

9.96%

16.35%

7.21%

14.33%

3.28%

2013

13.64%

27.91%

27.08%

23.20%

13.40%

20.75%

10.11%

17.28%

7.31%

14.98%

3.30%

2014

14.16%

27.67%

27.16%

23.61%

13.73%

21.25%

10.37%

17.83%

7.48%

15.52%

3.45%

For data prior to 2001, all tax returns that have a positive AGI are included, even those that do not have a positive income tax liability. For data from 2001 forward, returns with negative AGI are also included, but dependent returns are excluded.

Income tax after credits (the measure of “income taxes paid” above) does not account for the refundable portion of EITC. If it were included, the tax share of the top income groups would be higher. The refundable portion is classified as a spending program by the Office of Management and Budget and therefore is not included by the IRS in these figures.

The only tax analyzed here is the federal individual income tax, which is responsible for more than 25 percent of the nation’s taxes paid (at all levels of government). Federal income taxes are much more progressive than federal payroll taxes, which are responsible for about 20 percent of all taxes paid (at all levels of government), and are more progressive than most state and local taxes.

AGI is a fairly narrow income concept and does not include income items like government transfers (except for the portion of Social Security benefits that is taxed), the value of employer-provided health insurance, underreported or unreported income (most notably that of sole proprietors), income derived from municipal bond interest, net imputed rental income, and others.

The unit of analysis here is that of the tax return. In the figures prior to 2001, some dependent returns are included. Under other units of analysis (like the Treasury Department’s Family Economic Unit), these returns would likely be paired with parents’ returns.

These figures represent the legal incidence of the income tax. Most distributional tables (such as those from CBO, Tax Policy Center, Citizens for Tax Justice, the Treasury Department, and JCT) assume that the entire economic incidence of personal income taxes falls on the income earner.

[3] There is strong reason to believe that capital gains realizations were unusually depressed in 2013, due to the increase in the top capital gains tax rate from 15 percent to 23.8 percent. In 2013, capital gains accounted for 26.6 percent of the income of taxpayers with over $1 million in AGI received, compared to 31.7 percent in 2014 (these calculations apply for net capital gains reported on Schedule D). Table 1.4, Publication 1304, “Individual Income Tax Returns 2014,” Internal Revenue Service, https://www.irs.gov/uac/soi-tax-stats-individual-income-tax-returns-publication-1304-complete-report.

Tyler Cowen: The Rise and Fall of the Chinese Economy

The Great Stagnation by Tyler Cowen

Real gross domestic product (GDP) increased at an annual rate of 2.1 percent in the fourth quarter of
2016 (table 1), according to the "third" estimate released by the Bureau of Economic Analysis. In the
third quarter of 2016, real GDP increased 3.5 percent.
The GDP estimate released today is based on more complete source data than were available for the
"second" estimate issued last month. In the second estimate, the increase in real GDP was 1.9 percent.
With this third estimate for the fourth quarter, the general picture of economic growth remains largely
the same; personal consumption expenditures (PCE) increased more than previously estimated (see
"Updates to GDP" on page 2).

Real gross domestic income (GDI) increased 1.0 percent in the fourth quarter, compared with an
increase of 5.0 percent in the third. The average of real GDP and real GDI, a supplemental measure of
U.S. economic activity that equally weights GDP and GDI, increased 1.5 percent in the fourth quarter,
compared with an increase of 4.3 percent in the third quarter (table 1).
The increase in real GDP in the fourth quarter reflected positive contributions from PCE, private
inventory investment, residential fixed investment, nonresidential fixed investment, and state and local
government spending that were partly offset by negative contributions from exports and federal
government spending. Imports, which are a subtraction in the calculation of GDP, increased (table 2).
The deceleration in real GDP in the fourth quarter reflected downturns in exports and in federal
government spending, an acceleration in imports, and a deceleration in nonresidential fixed investment
that were partly offset by accelerations in private inventory investment and in PCE, and upturns in
residential fixed investment and in state and local government spending.
Current-dollar GDP increased 4.2 percent, or $194.1 billion, in the fourth quarter to a level of $18,869.4
billion. In the third quarter, current-dollar GDP increased 5.0 percent, or $225.2 billion (table 1 and
table 3).
The price index for gross domestic purchases increased 2.0 percent in the fourth quarter, compared
with an increase of 1.5 percent in the third quarter (table 4). The PCE price index increased 2.0 percent,
compared with an increase of 1.5 percent. Excluding food and energy prices, the PCE price index
increased 1.3 percent, compared with an increase of 1.7 percent (appendix table A).
Updates to GDP
The upward revision to the percent change in real GDP primarily reflected upward revisions to PCE and
to private inventory investment that were partly offset by downward revisions to nonresidential fixed
investment and to exports. Imports, which are a subtraction in the calculation of GDP, were revised
upward. For more information, see the Technical Note. For information on updates to GDP, see the
"Additional Information" section that follows.
Advance Estimate Second Estimate Third Estimate
(Percent change from preceding quarter)
Real GDP 1.9 1.9 2.1
Current-dollar GDP 4.0 3.9 4.2
Real GDI --- --- 1.0
Average of Real GDP and Real GDI --- --- 1.5
Gross domestic purchases price index 2.0 1.9 2.0
PCE price index 2.2 1.9 2.0
2016 GDP
Real GDP increased 1.6 percent in 2016 (that is, from the 2015 annual level to the 2016 annual level),
compared with an increase of 2.6 percent in 2015 (table 1).
The increase in real GDP in 2016 reflected positive contributions from PCE, residential fixed investment,
state and local government spending, exports, and federal government spending that were partly offset
by negative contributions from private inventory investment and nonresidential fixed investment.
Imports, which are a subtraction in the calculation of GDP, increased (table 2).
The deceleration in real GDP from 2015 to 2016 reflected downturns in private inventory investment
and in nonresidential fixed investment and decelerations in PCE, in residential fixed investment, and in
state and local government spending that were partly offset by a deceleration in imports and
accelerations in federal government spending and in exports.
Current-dollar GDP increased 3.0 percent, or $532.5 billion, in 2016 to a level of $18,569.1 billion,
compared with an increase of 3.7 percent, or $643.5 billion, in 2015 (table 1 and table 3).
Real GDI increased 1.6 percent in 2016, compared with an increase of 2.5 percent in 2015 (table 1).
The price index for gross domestic purchases increased 1.0 percent in 2016, compared with an increase
of 0.4 percent in 2015 (table 4).
During 2016 (that is, measured from the fourth quarter of 2015 to the fourth quarter of 2016), real GDP
increased 2.0 percent, compared with an increase of 1.9 percent during 2015. The price index for gross
domestic purchases increased 1.5 percent during 2016, compared with an increase of 0.4 percent during
2015. Real GDI increased 1.9 percent during 2016, compared with an increase of 1.5 percent during
2015 (table 7).
Corporate Profits (table 12)
Profits from current production (corporate profits with inventory valuation adjustment and capital
consumption adjustment) increased $11.2 billion in the fourth quarter of 2016, compared with an
increase of $117.8 billion in the third quarter.
Profits of domestic financial corporations increased $26.5 billion in the fourth quarter, compared with
an increase of $50.1 billion in the third. Profits of domestic nonfinancial corporations decreased $60.4
billion, in contrast to an increase of $66.4 billion. The estimate of nonfinancial corporate profits in the
fourth quarter was reduced by a $4.95 billion ($19.8 billion at an annual rate) settlement between a U.S.
subsidiary of Volkswagen and the federal and state governments. For more information, see the FAQ,
"What are the effects of the Volkswagen buyback deal on GDP and the national accounts?”. The
rest-of-the-world component of profits increased $45.1 billion, compared with an increase of $1.3 billion.
This measure is calculated as the difference between receipts from the rest of the world and payments to
the rest of the world. In the fourth quarter, receipts increased $9.1 billion, and payments decreased
$36.0 billion.
In 2016, profits from current production decreased $2.3 billion, compared with a decrease of $64.0
billion in 2015. Profits of domestic financial corporations increased $20.5 billion, compared with an
increase of $8.5 billion. Profits of domestic nonfinancial corporations decreased $47.0 billion, compared
with a decrease of $47.3 billion. The rest-of-the-world component of profits increased $24.3 billion, in
contrast to a decrease of $25.2 billion.
* * *
Next release: April 28, 2017 at 8:30 A.M. EDT
Gross Domestic Product: First Quarter 2017 (Advance Estimate)
Additional Information
Resources
Additional Resources available at www.bea.gov:
• Stay informed about BEA developments by reading the BEA blog, signing up for BEA’s email
subscription service, or following BEA on Twitter @BEA_News.
• Historical time series for these estimates can be accessed in BEA’s Interactive Data Application.
• Access BEA data by registering for BEA’s Data Application Programming Interface (API).
• For more on BEA’s statistics, see our monthly online journal, the Survey of Current Business.
• BEA's news release schedule
• NIPA Handbook: Concepts and Methods of the U.S. National Income and Product Accounts
Definitions
Gross domestic product (GDP) is the value of the goods and services produced by the nation’s economy
less the value of the goods and services used up in production. GDP is also equal to the sum of personal
consumption expenditures, gross private domestic investment, net exports of goods and services, and
government consumption expenditures and gross investment.
Gross domestic income (GDI) is the sum of incomes earned and costs incurred in the production of GDP.
In national economic accounting, GDP and GDI are conceptually equal. In practice, GDP and GDI differ
because they are constructed using largely independent source data. Real GDI is calculated by deflating
gross domestic income using the GDP price index as the deflator, and is therefore conceptually
equivalent to real GDP.
Current-dollar estimates are valued in the prices of the period when the transactions occurred—that is,
at “market value.” Also referred to as “nominal estimates” or as “current-price estimates.”
Real values are inflation-adjusted estimates—that is, estimates that exclude the effects of price changes.
The gross domestic purchases price index measures the prices of final goods and services purchased by
U.S. residents.
The personal consumption expenditure price index measures the prices paid for the goods and services
purchased by, or on the behalf of, “persons.”
Profits from current production, referred to as corporate profits with inventory valuation adjustment
(IVA) and capital consumption adjustment (CCAdj) in the NIPAs, is a measure of the net income of
corporations before deducting income taxes that is consistent with the value of goods and services
measured in GDP. The IVA and CCAdj are adjustments that convert inventory withdrawals and
depreciation of fixed assets reported on a tax-return, historical-cost basis to the current-cost economic
measures used in the national income and product accounts.
For more definitions, see the Glossary: National Income and Product Accounts.
Statistical conventions
Annual rates. Quarterly values are expressed at seasonally-adjusted annual rates (SAAR), unless
otherwise specified. Dollar changes are calculated as the difference between these SAAR values. For
detail, see the FAQ “Why does BEA publish estimates at annual rates?”
Percent changes in quarterly series are calculated from unrounded data and are displayed at annual
rates, unless otherwise specified. For details, see the FAQ “How is average annual growth calculated?”
Quantities and prices. Quantities, or “real” volume measures, and prices are expressed as index
numbers with a specified reference year equal to 100 (currently 2009). Quantity and price indexes are
calculated using a Fisher-chained weighted formula that incorporates weights from two adjacent
periods (quarters for quarterly data and annuals for annual data). “Real” dollar series are calculated by
multiplying the published quantity index by the current dollar value in the reference year (2009) and
then dividing by 100. Percent changes calculated from real quantity indexes and chained-dollar levels
are conceptually the same; any differences are due to rounding.
Chained-dollar values are not additive because the relative weights for a given period differ from those
of the reference year. In tables that display chained-dollar values, a “residual” line shows the difference
between the sum of detailed chained-dollar series and its corresponding aggregate.
Updates to GDP
BEA releases three vintages of the current quarterly estimate for GDP: "Advance" estimates are
released near the end of the first month following the end of the quarter and are based on source data
that are incomplete or subject to further revision by the source agency; “second” and “third” estimates
are released near the end of the second and third months, respectively, and are based on more detailed
and more comprehensive data as they become available.
Annual and comprehensive updates are typically released in late July. Annual updates generally cover at
least the 3 most recent calendar years (and their associated quarters) and incorporate newly available
major annual source data as well as some changes in methods and definitions to improve the accounts.
Comprehensive (or benchmark) updates are carried out at about 5-year intervals and incorporate major
periodic source data, as well as major conceptual improvements.
The table below shows the average revisions to the quarterly percent changes in real GDP between
different estimate vintages, without regard to sign.
Vintage Average Revision Without Regard to Sign
(percentage points, annual rates)
Advance to second 0.5
Advance to third 0.6
Second to third 0.2
Advance to latest 1.1
Note - Based on estimates from 1993 through 2015. For more information on GDP updates, see Revision
Information on the BEA Web site.
The larger average revision from the advance to the latest estimate reflects the fact that periodic
comprehensive updates include major statistical and methodological improvements.
Unlike GDP, an advance current quarterly estimate of GDI is not released because data on domestic
profits and on net interest of domestic industries are not available. For fourth quarter estimates, these
data are not available until the third estimate.